G.R. No.

183308

April 25, 2012

INSULAR INVESTMENT AND TRUST CORPORATION, Petitioner, vs. CAPITAL ONE EQUITIES CORP. (now known as CAPITAL ONE HOLDINGS CORP.) and PLANTERS DEVELOPMENT BANK, Respondents. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the June 6, 2008 Decision1 of the Court of Appeals (CA) in C.A.-G.R. CV No. 79320 entitled "Insular Investment and Trust Corporation v. Capital One Equities Corporation (now known as Capital One Holdings Corporation) and Planters Development Bank." THE FACTS Based on the records of the case and on the September 2, 1999 Partial Stipulation of Facts and Documents2 (the Partial Stipulation) agreed upon by the parties, the facts are as follows: Petitioner Insular Investment and Trust Corporation (IITC) and respondents Capital One Equities Corporation(COEC) and Planters Development Bank (PDB) are regularly engaged in the trading, sale and purchase of Philippine treasury bills. On various dates in 1994, IITC purchased from COEC treasury bills with an aggregate face value ofP260,683,392.51 (the IITC T-Bills), as evidenced by the confirmations of purchase issued by IITC. The purchase price for the said treasury bills were fully paid by IITC to COEC which was able to deliver P121,050,000.00 worth of treasury bills to IITC. On May 2, 1994, COEC purchased treasury bills with a face value of P186,774,739.49 (the COEC T-Bills). IITC issued confirmations of sale in favor of COEC covering the said transaction. COEC paid the purchase price by issuing the following checks: Check No. (1) City Trust Managers Check No. 001180 (2) UCPB-Ayala Managers Check No. AYLO43841 (3) UCPB-Ayala Managers Check No. AYLO43840 (4) UCPB-Ayala Check No. AYL213346 Payee Planters Development Bank Planters Development Bank Planters Development Bank Insular Investment and Trust Corporation Amount P154,802,341.59 P16,975,883.89 P10,413,043.78 P24,116.11

Both IITC and PDB received the proceeds of the checks. On May 2, 1994, PDB issued confirmations of sale in favor of IITC for the sale of treasury bills and IITC, in turn, issued confirmations of purchase in favor of PDB over treasury bills with a total face value of P186,790,000.00. Thereafter, PDB sent a letter3 dated May 4, 1994 to IITC undertaking to deliver treasury bills worthP186,790,000.00, which IITC purchased from PDB on May 2, 1994, as soon as they would be available. On May 10, 1994, COEC wrote a letter to IITC demanding the physical delivery of the treasury bills which the former purchased from the latter on May 2, 1994. In its May 18, 1994 Letter4 to PDB, IITC requested, on behalf of COEC, the delivery to IITC of treasury bills worthP186,790,000.00 which had been paid in full by COEC. COEC was furnished with a copy of the said letter.

On May 30, 1994, COEC protested the tenor of IITCs letter to PDB and took exception to IITCs assertion that it merely acted as a facilitator with regard to the sale of the treasury bills. IITC sent COEC a letter5 dated June 3, 1994, demanding that COEC deliver to it (IITC) the P139,833,392.00 worth of treasury bills or return the full purchase price. In either case, it also demanded that COEC (1) pay IITC the amount of P1,729,069.50 representing business opportunity lost due to the non-delivery of the treasury bills, and (2) deliver treasury bills worth P121,050,000 with the same maturity dates originally purchased by IITC. COEC sent a letter-reply6 dated June 9, 1994 to IITC in which it acknowledged its obligation to deliver the treasury bills worth P139,833,392.007 which it sold to IITC and formally demanded the delivery of the treasury bills worth P186,774,739.49 which it purchased from IITC. COEC also demanded the payment of lost profits in the amount of P3,253,250.00. Considering that COEC and IITC both have claims against each other for the delivery of treasury bills, COEC proposed that a legal set-off be effected, which would result in IITC owing COEC the difference of P46,941,446.49. In its June 13, 1994 letter to COEC, IITC rejected the suggestion for a legal setting-off of obligations, alleging that it merely acted as a facilitator between PDB and COEC. On June 27, 1994, COEC replied to IITCs letter, reiterating its demand and its position stated in its June 9, 1994 letter. On July 1, 1994, IITC, COEC and PDB entered into a Tripartite Agreement 8 (the Tripartite Agreement) wherein PDB assigned to IITC, which in turn assigned to COEC, Central Bank Bills with a total face value ofP50,000,000.00. These assignments were made in consideration of (a) IITC relinquishing all its rights to claim delivery under the confirmation of sale issued by PDB to IITC to the extent of P50,000,000.00 (face value) and (b) COEC relinquishing all its rights to claim delivery of the COEC TBills under the IITC confirmations of sale to COEC to the extent of P50,000,000.00 (face value). On the same day, COEC and IITC entered into an Agreement9 (the COEC-IITC Agreement) whereby COEC reassigned to IITC the Central Bank bills subject of the Tripartite Agreement to the extent of P20,000,000.00 in consideration of which IITC relinquished all its rights to claim from COEC the IITC TBills covered by the COEC confirmation of sale to the extent of an aggregate P20,000,000.00 face value. Despite repeated demands, however, PDB failed to deliver the balance of P136,790,000.00 worth of treasury bills which IITC purchased from PDB allegedly for COEC. COEC was likewise unable to deliver the remaining IITC T-Bills amounting to P119,633,392.00. Neither PDB and COEC returned the purchase price for the duly paid treasury bills.10 This prompted IITC to file the Amended Complaint11 dated March 20, 1995 before the Regional Trial Court, Branch 138, Makati City (RTC), praying that COEC be ordered to deliver treasury bills worth P119,633,392.00 to IITC or pay the monetary equivalent plus legal interests; and, in the alternative, that PDB be ordered to comply with its obligations under the conduit transaction involving treasury bills worth P136,790,000.00 by delivering the treasury bills to IITC, in addition to actual and exemplary damages and attorneys fees. COEC filed its Answer to Amended Complaint 12 dated April 10, 1995, admitting that it owed IITC treasury bills worth P119,633,392.00. It countered, however, that IITC had an outstanding obligation to deliver to COEC treasury bills worth P136,774,739.49.13 COEC prayed that IITC be required to deliver P17,141,347.49 (the amount IITC still owed COEC after a legal off-setting of their debts against each other) to COEC in addition to moral and exemplary damages and attorneys fees.14 PDB, for its part, insisted in its Answer Ad Cautelam15 that it had no knowledge or participation in the sale by IITC of treasury bills to COEC. It admitted that it sent a letter dated May 4, 1994 to IITC, undertaking to deliver treasury bills worth P186,790,000.00 which IITC purchased from PDB. PDB posited, however, that IITC was not entitled to the delivery of the said treasury bills because IITC did not remit payment to PDB. Neither did the subject securities become available to PDB. In its Judgment16 dated June 16, 2003, the RTC found that COEC still owed IITC P119,633,392.00 worth of treasury bills, pursuant to their transaction in early 1994. As regards the sale of treasury bills by IITC to COEC, however, the RTC determined that IITC was not merely a conduit in the purchase a sale of treasury

bills between PDB and COEC. Rather, IITC acted as a principal in two transactions: as a buyer of treasury bills from PDB and as a seller to COEC. Taking into consideration the Tripartite Agreement, IITC was still liable to pay COEC the sum of P136,790,000.00. Since IITC and COEC were both debtors and creditors of each other, the RTC off-set their debts, resulting in a difference of P 17,056,608.00 in favor of COEC. As to PDBs liability, it ruled that PDB had the obligation to pay P136,790,000.00 to IITC. Thus, the trial court ordered (a) IITC to pay COEC P17,056,608.00 with interest at the rate of 6% from June 10, 1994 until full payment and (b) PDB to pay IITC P136,790,000.00 with interest at the rate of 6% from March 21, 1995 until full payment. Aggrieved, all parties appealed to the CA which promulgated its decision on June 6, 2008. The CA affirmed the RTC finding that IITC was not a mere conduit but rather a direct seller to COEC of the treasury bills.17 The CA, however, absolved PDB from any liability, ruling that because PDB was not involved in the transactions between IITC and COEC, IITC should have alleged and proved that PDB sold treasury bills to IITC.18 Moreover, PDB only undertook to deliver treasury bills worth P186,790,000.00 to IITC "as soon as they are available."19 But, the said treasury bills did not become available. Neither did IITC remit payment to PDB. As such, PDB incurred no obligation to deliver P186,790,000.00 worth of treasury bills to IITC. Hence, this petition. THE ISSUES IITC raises the following grounds for the grant of its petition: A. The petition is not dismissible. The issue of whether IITC acted as a conduit is a question of law. Assuming for the sake of argument that the petition involves questions of fact, the Supreme Court may take cognizance of the petition under exceptional circumstances. B. The Court of Appeals gravely erred and acted contrary to law and jurisprudence and the evidence on record in holding that IITC did not act as a conduit of Capital One and Plantersbank in the 2 May 1994 sale of COEC T-bills. C. The Court of Appeals erred and acted contrary to law and the evidence on record in ruling that Plantersbank did not have any obligation to delivery the COEC T-Bills to IITC under IITCs alternative cause of action. D. The Court of Appeals erred and acted contrary to law in holding that Capital One could validly set off its claims for the undelivered COEC T-Bills against the fully paid IITC T-Bills. E. The Court of Appeals further erred and acted contrary to law in holding that Capital One and Plantersbank were not guilty of fraud. F. The Court of Appeals violated IITCs right to due process in affirming, without citing any basis whatsoever, the erroneous holding of the trial court that there was insufficient evidence to prove the actual and consequential damages sustained by IITC.20 COEC puts forth the following issues: Whether the Court of Appeals correctly held that IITC did not act as a conduit of Capital One and Plantersbank in the May 2, 1994 sale of the COEC T-Bills by IITC to Capital One. Whether the Court of Appeals correctly held that Capital One may validly set off its claim for the undelivered COEC T-Bills against the balance of the IITC T-Bills. Whether the Court of Appeals correctly affirmed the holding of the trial court that Capital One and Plantersbank are not guilty of fraud. Whether the Petition raises questions of fact, and whether it is defective. Whether Capital One is entitled to the correction of the mathematical error in the computation of the money judgment in its favor.21 For its part, PDB identifies the principal issue to be "whether it was obliged to deliver to petitioner Insular the treasury bills which the latter sold, as principal, to Capital One, and/or pay the value thereof."22 The following are stated as corollary issues:

Whether petitioner Insular was acting as "facilitator" or "conduit" in the May 2, 1994 sales of the treasury bills; Whether petitioner Insular may raise in this petition the issue of it being merely as "facilitator" or "conduit" after the Trial Court and Court of Appeals found that petitioner Insular was not a "facilitator" or "conduit." Whether respondents Plantersbank and Capital One were guilty of fraud in their transactions with petitioner Insular. Whether petitioner Insular was entitled to actual and consequential damages.23 The numerous issues can be simplified as follows: (1) Whether IITC acted as a conduit in the transaction between COEC and PDB; (2) Whether COEC can set-off its obligation to IITC as against the latters obligation to it; and (3) Whether PDB has the obligation to deliver treasury bills to IITC. THE COURTS RULING The petition is partly meritorious. Question of fact; IITC did not act as conduit Petitioner IITC insists that the issue of whether it acted as a conduit is a question of law which can properly be the subject of a petition for review before this Court. Because the parties already entered into a stipulation of facts and documents, the facts are no longer at issue; rather, the court must now determine the applicable law based on the admitted facts, thereby making it a question of law. Even assuming that the determination of IITCs role in the two transactions is a pure question of fact, it falls under the exceptions when the Court may decide to review a question of fact.24 Respondent COEC, on the other hand, argues that IITC raises questions of fact. An issue is one of fact when: (a) there is a doubt or difference as to the truth or falsehood of the alleged facts, (b) the issues raised invite a calibration, assessment, re-examination and re-evaluation of the evidence presented, (c) it questions the probative value of evidence presented or the proofs presented by one party are clear, convincing and adequate. Because the question of whether IITC was merely a conduit satisfies all the conditions enumerated, then it is a question of fact which this Court cannot pass upon. In addition, COEC calls attention to the principle that findings of fact of the trial court, especially when approved by the Court of Appeals, are binding and conclusive on the Supreme Court.25 PDB also maintains that the finding of the RTC that IITC did not act as a conduit between PDB and COEC was supported by substantial evidence and was sustained by the CA. Thus, it is already binding and conclusive upon this Court, whose jurisdiction is limited to reviewing only errors of law and not of fact.26 Respondents are correct. The issue raised by IITC is factual in nature as it requires the Court to delve into the records and review the evidence presented by the parties to determine the validity of the findings of both the RTC and the CA as to IITCs role in the transactions in question. These are purely factual issues which this Court cannot review.27 Well-established is the principle that factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are binding and conclusive on this Court and will generally not be reviewed on appeal.28 As discussed in The Insular Life Assurance Company, Ltd. v. Court of Appeals:29 It is a settled rule that in the exercise of the Supreme Courts power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court. However, the Court had recognized several exceptions to this rule, to wit: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in

making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.30 Contrary to IITCs claim, the circumstances surrounding the case at bench do not justify the application of any of the exceptions. At any rate, even if the Court would be willing to disregard this time-honored principle, the inevitable conclusion would be the same as that made by the RTC and the CA that IITC did not act as a conduit but rather as a principal in two separate transactions, one as the purchaser of treasury bills from PDB and, in another, as the seller of treasury bills to COEC. The evidence against IITC cannot be denied. The confirmations of sale issued by IITC to COEC unmistakably show that the former, as principal, sold the treasury bills to the latter:31 Gentlemen: As principal, we confirm having sold to you on a without recourse basis the following securities against which you shall pay us clearing funds on value date. IITCs confirmations of purchase to PDB likewise reflect that it acted as the principal in the transaction:32 Gentlemen: As principal, we confirm having purchased from you on a without recourse basis the following securities against which we shall pay you clearing funds on value date. There is nothing in these documents which mentions that IITC merely acted as a conduit in the sale and purchase of treasury bills between PDB and COEC. On the contrary, the confirmations of sale and of purchase all clearly and expressly indicate that IITC acted as a principal seller to COEC and as a principal buyer from PDB. IITC then tries to shift the blame to PDB and COEC by alleging that it was the two parties which conceptualized the two-step or conduit transaction and dictated the documents to be used. As such, they cannot be allowed to "take advantage of the ambiguity created by the documentation which it, in conspiracy with Plantersbank, concocted to render IITC, an innocent party, liable."33 This argument is far-fetched and borders on the incredible. At the outset, it should be pointed out that there is no ambiguity whatsoever in the language of the documents used. The confirmations of sale and purchase unequivocally state that IITC acted as a principal buyer and seller of treasury bills. The language used is as clear as day and cannot be more explicit. Thus, because the words of the documents in question are clear and readily understandable by any ordinary reader, there is no need for the interpretation or construction thereof.34 This was emphasized in the case of Pichel v. Alonzo:35 Xxx. To begin with, We agree with petitioner that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that: "Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control"

Pursuant to the aforequoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible.36 (Emphases supplied) COEC and PDB did not take advantage of any vagueness in the documents in question. They only seek to enforce the intention of the parties, in accordance with the terms of the confirmations of sale and purchase voluntarily entered into by the parties. The Court also finds it hard to believe that an entity would carelessly and imprudently expose itself to liability in the amount of millions of pesos by failing to ensure that the documents used in the transaction would be a faithful account of its true nature. It is important to note that the confirmations of sale were issued by IITC itself using its own documents. Therefore, it defies imagination how COEC and PDB could have foisted off these forms on IITC against its will. In addition, a comparison of the confirmations of sale issued by IITC in favor of COEC as against the confirmations of sale issued by PDB in favor of IITC indicates that there is a difference in the interest rates of the treasury bills and in the face values: PDB Confirmations of Sale to IITC37 Maturity Date July 13, 1994 July 6, 1994 Yield 17.150% 17.150% Face Value P44,170,000.00 142,620,000.00 P186,790,000.00 IITC Confirmations of Sale to COEC38 Maturity Date July 13, 1994 July 6, 1994 Yield 17.0% 17.0% Face Value P 44,161,700.44 142,613,039.05 P186,774,739.49 Total Price P 43,000,000.00 139,215,385.70 P182,215,385.70 Total Price P42,998,169.00 139,193,100.56 P182,191,269.56

IITC offered a lower interest rate of 17% to COEC, in contrast to the 17.15% interest rate given to it by PDB. There is also a notable difference in the face value of the treasury bills and in the total price paid for each set. If, as IITC insists, it only acted as a conduit to the sale between PDB and COEC, then there should be no disparity in the terms (the interest rate, the face value and the total price) of the sale of the treasury bills. Obviously, this is not the case. The figures lead to no other conclusion but that there were two separate transactions in both of which IITC played a principal role as a buyer from PDB of treasury bills with an aggregate face value ofP186,790,000.00 at an interest rate of 17.15% and as a seller to COEC of treasury bills with an aggregate face value of P186,774,739.49 at an interest rate of 17%. Again, IITC attempts to hold PDB and COEC responsible for this questionable variation, alleging that it was PDB and COEC which dictated the details of the purchase and sale of the treasury bills. IITC heavily relies on the fact that COEC directly paid PDB the amount of P182,191,269.26 representing the amount covered in the confirmations of sale issued by PDB to strengthen its position that it merely acted as a conduit between PDB and COEC.39 This was further supported by the internal trading sheets of IITC where the following handwritten notations were made: (1) in Purchase Trading Sheet No. 10856 covering the purchase of treasury bills by IITC from PDB: "dont prepare any check; payment will come from Capital One (See STS 10811)", and (2) in Sale Trading Sheet No. 10811 covering the sale of treasury bills by IITC to COEC: "for STS 10810 and 10811 will receive 2 checks payable to the ff: 1. Planters Devt Bank - P182,191,269.59 2. IITC - 24,116.11" The Court is not convinced. That COEC directly paid PDB is of no moment and does not necessarily mean that COEC recognized IITCs conduit role in the transaction. Neither does it disprove the findings of both the RTC and the CA that IITC acted as principal in the two transactions the purchase of treasury bills from PDB and the subsequent sale thereof to COEC. The Court agrees with the explanation of the RTC:

The Court is aware that in the trading business, agreements are concluded even before the goods being traded are received by the "would be seller." Buyers in turn conclude their transactions even before they are paid. For this reason, the mere fact that in document for internal use, the instruction that "payment will come from Capital One" will not, by itself, prove that plaintiff was a mere conduit. Neither could it be considered as circumstantial to establish the fact in issue. At most, the instructions merely identified the source of funds but whether those funds are to be received by the plaintiff as purchase price or for remittance to whoever is entitled to it, none was indicated. The Court may look at the instruction differently if the entries were "no payment required; COEC to pay PDB directly" or "this is a conduit transaction; servicing to be done by COEC" or "COEC to pay PDB directly."40 IITC also insists that the fact that the P24,116.11 which it claims to be a facilitation fee is exactly the difference between the principal amounts of the treasury bills purchased from PDB and the treasury bills sold to COEC constitutes "the smoking gun or the veritable elephant in the living room."41 To IITC, it is apparent that the amount is a facilitation fee, adding credence to its contention that it only acted as a conduit. The Court cannot sustain that view. There is nothing to prove that the amount of P24,116.11 received by IITC from COEC was a facilitation fee. As explained by COEC, the amount could easily have been the margin or spread earned by IITC in the buy-and-sell transaction.42 This is, however, not for the Court to determine. As such, the Court relies on the findings of the RTC on this matter: Plaintiffs other evidence to prove its conduit role was the delivery to it by COEC by way of its corporate check ofP24,116.11 in payment of plaintiffs conduit fee. The Court is hesitant to give probative value to this proof because nowhere does it appear in the trading sheets or any other document that it was collected by plaintiff and received by it from COEC in that concept. Business practice is to issue an official receipt because it is an income, but none was presented. The testimonial evidence was refuted. COEC presented controverting evidence on the original mode of payment which was requested to be changed by witness Bombaes. COEC presented the unsigned check and voucher. The latter was duly accomplished and bears the signatures or initials of the approving officers. On this particular issue, COECs evidence deserves more weight.43 Finally, as correctly observed by the RTC, the actions of IITC after the transaction were not those of a conduit but of a principal: The Court notes with particular interest the events which transpired on May 4, 1994, two (2) days after plaintiff through witness Mendoza learned of the non-delivery by PDB of the treasury bills. Witness Mendoza went to the office of PDB and secured the letter, Exhibit E, which contains the undertaking of PDB to deliver the treasury bills. This was procured by plaintiff and addressed to the plaintiff. The language used by PDB was "purchase[d] from us" and plaintiff accepted it. Plaintiff failed to explain the reason for demanding delivery of the treasury bills when it was not the buyer as it so claims. It also failed to object to the use by PDB of the words "purchase[d] from us," something which it could easily do or should do considering the amount involved. The conduct of the plaintiff after concluding the May 2, 1994 transaction [was] [that] of a buyer.44 From the foregoing, it is clear that IITC acted as principal purchaser from PDB and principal seller to COEC, and not simply as a conduit between PDB and COEC. Set-off allowed IITC argues that the RTC and the CA erred in holding that COEC can validly set off its claims for the undelivered IITC T-Bills against the COEC T-Bills.45 IITC reiterates that COEC did not become a creditor of IITC because the former did not pay the latter for the purchased treasury bills. Rather, it was PDB which received the proceeds of the payment from COEC. 46 In addition, their obligations do not consist of a sum or money. Neither are they of the same kind because the obligations call for the delivery of specific determinate things treasury bills with specific maturity dates and various interest rates. Thus, legal compensation cannot take place.47 COEC, on the other hand, points out that it has already unquestionably proven that IITC acted as a principal, and not as a conduit, in the sale of treasury bills to COEC.48 Furthermore, it asserts that the

treasury bills in question are generic in nature because the confirmations of sale and purchase do not mention specific treasury bills with serial numbers.49 The securities were sold as indeterminate objects which have a monetary equivalent, as acknowledged by the parties in the Tripartite Agreement. 50 As such, because both IITC and COEC are principal creditors of the other over debts which consist of consumable things or a sum of money, the RTC correctly ruled that COEC may validly set-off its claims for undelivered treasury bills against that of IITCs claims.51 The Court finds in favor of respondent COEC. The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. xxx Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the abovequoted Article 1279 should be present, as in the case at bench. The lower courts have already determined, to which this Court concurs, that IITC acted as a principal in the purchase of treasury bills from PDB and in the subsequent sale to COEC of the COEC T-Bills. Thus, COEC and IITC are principal creditors of each other in relation to the sale of the COEC T-Bills and IITC T-Bills, respectively. IITC also claims that the COEC T-Bills cannot be set-off against the IITC T-Bills because the latter are specific determinate things which consist of treasury bills with specific maturity dates and various interest rates.52 IITCs actions belie its own assertion. The fact that IITC accepted the assignment by COEC of Central Bank Bills with an aggregate face value of P20,000,000.00 as payment of part of the IITC T-Bills is evidence of IITCs willingness to accept other forms of security as satisfaction of COECs obligation. It should be noted that the second requisite only requires that the thing be of the same kind and quality. The COEC T-Bills and the IITC T-Bills are both government securities which, while having differing interest rates and dates of maturity, have each been assigned a certain face value to determine their monetary equivalent. In fact, in the Tripartite Agreement, the COEC-IITC Agreement and in the memoranda of the parties, the parties recognized the monetary value of the treasury bills in question, and, in some instances, treated them as sums of money.53 Thus, they are of the same kind and are capable of being subject to compensation. The third, fourth and fifth requirements are clearly present and are not denied by the parties. Both debts are due and demandable because both remain unsatisfied, despite payment made by IITC for the IITC TBills and by COEC for the COEC T-Bills. Moreover, COEC readily admits that it has an outstanding balance in favor of IITC.54Conversely, IITC has been found by the lower courts to be liable, as principal seller, for the delivery of the COEC T-Bills.55 The debts are also liquidated because their existence and amount are determined.56 Finally, there exists no retention or controversy over the COEC T-Bills and the IITC T-Bills.

Because all the stipulations under Article 1279 are present in this case, compensation can take place. COEC is allowed to set-off its obligation to deliver the IITC T-Bills against IITCs obligation to deliver the COEC T-Bills. Correction of the amount due Having established that compensation or set-off is allowed between COEC and IITC, the Court will now delve into the proper amount of the award and the applicable interest rates. The RTC, in its Judgment, ordered IITC to pay COEC the amount of P17,056,608 with interest at the rate of 6% per annum until full payment. In arriving at the said amount, the trial court used, as its basis, COECs claim against IITC for P186,790,000 worth of treasury bills less P50,000,000 which it received under the Tripartite Agreement. Then it deducted from this the P139,633,392.00 face value of the undelivered treasury bills by COEC to IITC less the P20,000,000 which COEC assigned to IITC pursuant to the COECIITC Agreement.57 As correctly pointed out by COEC, there was a mistake in the arithmetic subtraction made by the RTC. Using the figures provided by the lower court, the correct result should have been P17,156,608.00, P100,000.00 more than what was adjudged in favor of COEC. To illustrate: The trial courts computation COECs counterclaim against IITC Amount assigned by IITC to COEC Subtotal IITCs claim against COEC Amount reassigned by COEC to IITC Subtotal TOTAL P139,633,392.00 (20,000,000.00) P119,633,392.00 P17,156,608.00 P186,790,000.00 (50,000,000.00) P136,790,000.00

Aside from the error in the RTCs mathematical computation, a review of the records, particularly the March 20, 1995 Amended Complaint filed by IITC, the April 10, 1995 Answer to Amended Complaint (With Counterclaim) filed by COEC and the September 2, 1999 Partial Stipulation of Facts and Documents submitted by IITC, COEC and PDB to the trial court, reveals that there was some confusion as to the correct basis to be used for calculating the amount due to COEC. In COECs Answer and in the Partial Stipulation, it explicitly stated that it purchased from IITC treasury bills with a face value of P186,774,739.49, as evidenced by the Confirmations of Sale issued by IITC. If this figure is used in computing COECs award, the resulting amount would be P17,141,347.49, which is consistent with COECs counterclaim. The revised computation COECs counterclaim against IITC Amount assigned by IITC to COEC Subtotal IITCs claim against COEC Amount reassigned by COEC to IITC Subtotal TOTAL P139,633,392.00 (20,000,000.00) P119,633,392.00 P17,141,347.49 P186,774,739.49 (50,000,000.00) P136,774,739.49

Lastly, as regards the legal interest which should be imposed on the award, the Court directs the attention of the parties to the case of Eastern Shipping Lines v. Court of Appeals,58 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.59 (Emphases supplied) Because the obligation arose from a contract of sale and purchase of government securities, and not from a loan or forbearance of money, the applicable interest rate is 6% from June 10, 1994, when IITC received the demand letter from COEC.60 After the judgment becomes final and executory, the legal interest rate increases to 12% until the obligation is satisfied. In sum, the Court finds that after compensation is effected, IITC still owes COEC P17,141,347.49 worth of treasury bills, subject to the interest rate of 6% per annum from June 10, 1994, then subsequently to the increased interest rate of 12% from the date of finality of this decision until full payment. PDB has an obligation to deliver the treasury bills to IITC The CA, in absolving PDB from all liability, reasoned that: (1) PDB was not involved in the transactions for the purchase and sale of treasury bills between IITC and COEC; (2) IITC failed to allege in its Amended Complaint and prove during the trial that PDB directly and principally sold to IITC P186,790,000 worth of treasury bills; (3) while PDB undertook, in its May 4, 1994 letter to deliver to IITC the said treasury bills, the obligation did not ripen because the bills did not become available to PDB and IITC did not remit any payment to PDB; (4) IITC did not demand delivery of the treasury bills; (5) IITC merely sued PDB as an alternative defendant, implying that IITC did not have a principal and direct cause of action against PDB on the treasury bills; and (6) there was nothing in the records to support the trial courts finding that PDB owed IITC P186,790,000 worth of treasury bills.61 PDB essentially echoes the reasons set forth by the CA and reiterated that because IITC did not pay for the treasury bills subject of its (PDB) May 4 undertaking, then IITC had no right to demand delivery of the said securities from PDB. Moreover, the check payments made by COEC to PDB were not in payment of the treasury bills purchased by IITC from PDB, but for COECs other obligations with PDB. The total amount of the checksP182,191,269.26 did not correspond to the treasury bills worth P186,790,000 which COEC allegedly purchased from PDB with IITC acting as conduit. PDB also points out that COEC did not interpose a cross-claim against it precisely because COEC was aware that it had no claim against PDB.62 Also, the checks clearly indicated that they were made in payment for the account of COEC.63 IITC insists that it alleged in its Amended Complaint (by way of alternative cause of action) that PDB directly and principally sold to IITC treasury bills worth P186,790,000.00. By suing PDB as an alternative defendant, IITC did not acknowledge that PDB could not be held principally liable. On the contrary, by

bringing suit against PDB under an alternative cause of action, IITC set forth a claim against PDB as the principal seller of the treasury bills. In addition, IITC categorically refuted PDBs allegation that the former did not pay for the treasury bills purchased from the latter. The judicial admissions of PDB during the course of the trial and in the Partial Stipulation, that PDB received the proceeds of the managers checks issued by COEC as payment for COECs purchase of treasury bills from IITC, contradict PDBs defense that no payment was made by IITC for the said treasury bills. Payment by COEC to PDB, upon IITCs instructions, should be treated as a payment by a third person with the knowledge of the debtor, under Article 1236 of the Civil Code. Thus, when PDB accepted COECs checks, it became duty bound to deliver the treasury bills sold to IITC as the principal buyer.64 Lastly, IITC points out the absurdity of the CA decision in allowing COEC to offset its liability to IITC against its liability to deliver the treasury bills purchased by COEC. The parties do not deny that COEC paid for the purchase price of the subject treasury bills by issuing managers checks in the name of PDB and IITC. As such, unless COECs payment to PDB is credited as payment by IITC to PDB for the securities purchased by IITC, under that theory that IITC acted as a principal buyer, there would be no obligation on the part of IITC against which a set-off can be effected by COEC.65 On this point, the Court agrees with IITC. First, while it is true that PDB was not involved in the sale of the COEC T-Bills, it is irrelevant to the issue because it is IITC which interposed a claim, albeit an alternative one, against PDB for having sold to IITC treasury bills worth P186,790,000.00. This was alleged in IITCs Amended Complaint and was deemed by the RTC to have been successfully proven.66 The findings of the RTC are supported by the confirmations of sale issued by PDB in favor of IITC and PDBs letter dated May 4, 1994 undertaking to deliver the treasury bills worth P186,790,000.00 to IITC.67 The due execution and the veracity of the contents of the aforesaid documents have been admitted by the parties.68 Second, it is erroneous to say that IITC never made any demand upon PDB. IITCs letter dated May 18, 1994 addressed to PDB confirms that it demanded delivery by PDB of the treasury bills covered by the confirmations of sale issued by PDB in its favor. Although the demand was made on behalf of COEC, which allegedly purchased the treasury bills from PDB, consistent with IITCs assertion that it only facilitated the sale, it was nevertheless a demand for delivery. Even if this were to be considered an invalid demand because it was not made by IITC as the principal party to the transaction with PDB, the filing of the Amended Complaint by IITC is equivalent to demand, in keeping with the rule that the filing of a complaint constitutes judicial demand.69 Third, the CA ruling that IITC impliedly did not have a principal cause of action because it merely sued PDB as an alternative defendant is an extremely flawed and baseless supposition which runs counter to established law and jurisprudence. The filing of a suit against an alternative defendant and under an alternative cause of action should not be taken against IITC. Section 13, Rule 3 and Section 2, Rule 8 of the Rules of Civil Procedure explicitly allows such filing: Rule 13, Section 13: Alternative defendants. Where the plaintiff is uncertain against who of several persons he is entitled to relief, he may join any or all of them as defendants in the alternative, although a right to relief against one may be inconsistent with a right of relief against the other. (13a) Rule 8, Section 2: Alternative causes of action or defenses. A party may set forth two or more statements of a claim or defense alternatively or hypothetically, either in one cause of action or defense or in separate causes of action or defenses. When two or more statements are made in the alternative and one of them if made independently would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements. As discussed earlier, the Court is not granting IITCs primary cause of action against COEC because IITC acted, not as a mere conduit for the sale of shares by PDB to COEC as alleged by IITC, but rather as a principal purchaser of securities from PDB and then later as a principal seller to COEC. By reason of this determination, COEC is allowed to offset its outstanding obligation to deliver the remaining IITC T-Bills against the latters obligation to deliver the COEC T-Bills. Consequently, IITCs alternative action against the alternative defendant PDB should be considered in order for IITC to be able to recover from PDB the P186,790,000.00 worth of treasury bills which had already been fully paid for.

To ascertain whether IITC was able to adequately state an alternative cause of action against PDB in its Amended Complaint, the Court refers to Perpetual Savings Bank v. Fajardo70 where the test for determining the existence of a cause of action was extensively discussed: The familiar test for determining whether a complaint did or did not state a cause of action against the defendants is whether or not, admitting hypothetically the truth of the allegations of fact made in the complaint, a judge may validly grant the relief demanded in the complaint. In Rava Development Corporation v. Court of Appeals, the Court elaborated on this established standard in the following manner: "The rule is that a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof. The test of the sufficiency of the facts found in a petition as constituting a cause of action is whether or not, admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer thereof (Consolidated Bank and Trust Corp. v. Court of Appeals, 197 SCRA 663 [1991]).
1wphi1

In determining the existence of a cause of action, only the statements in the complaint may properly be considered. It is error for the court to take cognizance of external facts or hold preliminary hearings to determine their existence. If the allegation in a complaint furnish sufficient basis by which the complaint may be maintained, the same should not be dismissed regardless of the defenses that may be assessed by the defendants (supra). A careful review of the records of this case reveals that the allegations set forth in the complaint sufficiently establish a cause of action. The following are the requisites for the existence of a cause of action: (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) an act or omission on the part of the said defendants constituting a violation of the plaintiff's right or a breach of the obligation of the defendant to the plaintiff (Heirs of Ildefonso Coscolluela, Sr., Inc. v. Rico General Insurance Corporation, 179 SCRA 511 [1989])."71 (Emphases supplied) Following the disquisition above, IITCs Amended Complaint, while not a model of superb draftsmanship in its struggle to maintain IITCs conduit theory, adequately sets forth a cause of action against PDB. Under its claim against PDB as alternative defendant, IITC alleged that, even if it acted as a direct buyer from PDB, (1) IITC is entitled to the delivery of the treasury bills worth P186,790,000.00 covered by the confirmations of sale issued by PDB, (2) PDB has an obligation to deliver the same to IITC, and (3) PDB failed to deliver the said securities to IITC.72 It would be the height of injustice to hold IITC accountable for the delivery of the COEC T-Bills to COEC without similarly holding PDB liable for the release of the treasury bills worth P186,790,000.00 to IITC, which cannot be accomplished without allowing IITCs alternative cause of action against PDB to prosper. The Court now tackles the main argument of PDB for sustaining the ruling of the CA absolving it from liability that IITC allegedly failed to make the required payment for the purchase. PDB claims that the managers checks which it received from COEC were payment by the latter for its other obligations to the former. Conspicuously, PDB failed to elaborate on the supposed obligations of COEC. This flimsy allegation is patently untrue. In its Memorandum,73 COEC denied that the checks were payment for an account which it had with PDB, as PDB so desperately alleges. COEC clarified that the managers checks payable to PDB were issued by COEC upon the instructions of IITC in payment for the COEC T-Bills. PDBs theory was negated by COEC itself as the issuer of the checks. Moreover, PDB already judicially admitted, through the Partial Stipulation, that the checks were given by COEC as payment for the COEC T-Bills. Section 4, Rule 129 of the Revised Rules of Evidence provides that:

Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. As such, PDB cannot now gainsay itself by claiming that the checks were payment by COEC for certain unidentified obligations to PDB. "It is well-settled that judicial admissions cannot be contradicted by the admitter who is the party himself and binds the person who makes the same, and absent any showing that this was made thru palpable mistake, no amount of rationalization can offset it."74 Since it has been sufficiently established that it was IITC which instructed that payment be made to PDB, it is apparent that the said checks were delivered to PDB in consideration of a transaction between PDB and IITC. On May 2, 1994, the same date the checks were issued, IITC purchased treasury bills with a combined face value ofP186,790,000.00 from PDB for the total price of P182,191,269.56. The Court notes that the P182,191,269.26 aggregate amount of the checks issued by COEC to PDB is almost exactly equal to the total price of the treasury bills which IITC purchased from PDB.75 The payment by COEC on behalf of IITC can be considered as payment made by a third-party to the transaction between IITC and PDB which is allowed under Article 1236 of the Civil Code of the Philippines.76 The Court finds no logical reason either for PDB to execute the May 4, 1994 Letter to IITC undertaking to deliver treasury bills worth P186,790,000.00 if it had not received the payment from IITC. Especially so because there is nothing in the letter to indicate that PDB was still awaiting payment for the said securities. There is no other reasonable conclusion but that PDB received payment, in the form of three managers checks issued by COEC, for the treasury bills purchased by IITC, and that having failed to promptly deliver the treasury bills despite having encashed the checks, PDB then executed the foregoing letter of undertaking. Also telling is PDBs participation in the Tripartite Agreement with IITC and COEC where it assigned P50,000,000 worth of Central Bank Bills to IITC, in consideration of which, IITC relinquished its right to claim delivery under the confirmations of sale issued by PDB to the extent of P50,000,000. While the agreement stipulated that it was not in any way an admission of any liability by any one of them against another, the fact that PDB agreed to execute such an agreement is indicative of the existence of its obligation to IITC. In its Answer Ad Cautelam filed before the RTC, PDB explained that it gave up P50,000,000 worth of Central Bank Bills simply to assist COEC and IITC meet their financial difficulties. The Court finds this allegation highly inconceivable, preposterous and even ludicrous because no company in its right mind would willingly part with such a huge amount of bank bills for no consideration whatsoever except for solely altruistic reasons. Finally, PDBs argument that it had no obligation to deliver the treasury bills purchased by IITC because the same did not become available to PDB is evidently a frantic last ditch attempt to evade liability. That the subject securities did not become available to PDB should not be the concern of IITC. For as long as payment was made, PDB was obliged to deliver the securities subject of its confirmations of sale. PDBs adroit maneuvering coupled with IITCs poorly conceived conduit theory led the CA to reach an erroneous conclusion. This Court, however, will not be similarly blinded. There is simply an incongruity in the CA decision. Accordingly, this Court rules that PDB should be liable for the delivery of P186,790,000.00 worth of treasury bills to IITC, or payment of the same, reduced by P50,000,000.00 which the former assigned to the latter under the Tripartite Agreement. The total liability of PDB is P136,790,000.00, computed as follows: PDBs Liability Amount of treasury bills purchased by IITC P186,790,000.00 Amount assigned by PDB to IITC TOTAL 50,000,000.00 P136,790,000.00

This shall be subject to interest at the rate of 6% per annum from the date of the filing of the Amended Complaint on March 21, 1995, considered as the date of judicial demand, then to 12% per annum from the date of finality of this decision until full payment.

To rule otherwise would be to allow unjust enrichment on the part of PDB to the detriment of IITC. Article 22 of the Civil Code of the Philippines provides that: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. In the recent case of Flores v. Spouses Lindo,77 this Court expounded on the subject matter: There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience." The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another. The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration.78 The Court cannot condone a decision which is manifestly partial. Neither shall the Court be a party to the perpetration of injustice. As the last bastion of justice, this Court shall always rule pursuant to the precepts of fairness and equity in order to dispel any doubt in the integrity and competence of the Judiciary. WHEREFORE, the petition is PARTIALLY GRANTED. The June 6, 2008 Decision of the Court of Appeals in C.A.-G.R. CV No. 79320 is SET ASIDE. Accordingly, the June 16, 2003 RTC Decision is REINSTATED thoughMODIFIED to read as follows: FOR THE REASONS GIVEN, judgment is hereby rendered a] ordering Planters Development Bank to pay plaintiff P 136,790,000.00 with interest at the rate of six (6%) percent per annum from March 21, 1995 until full payment; b] ordering Insular and Trust Investment Corporation to pay Capital One Equities Corporation P17,156,608.00 with legal interest at the rate of six (6%) percent per annum from June 10, 1994 until full payment; and c] dismissing the counterclaim of Planters Development Bank. Any amount not paid upon the finality of this decision shall be subject to interest at the increased rate of twelve (12%) percent per annum reckoned from the date of finality of this decision until full payment thereof. No pronouncement as to costs. SO ORDERED. Compensation/set-off; requisites. The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.

Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the above-quoted Article 1279 should be present, as in the case at bench. Insular Investment and Trust Corporation vs. Capital One Equities Corp. and Planters Development Bank; G.R. No. 183308, April 25, 2012

G.R. No. 174118

April 11, 2012

THE ROMAN CATHOLIC CHURCH, represented by the Archbishop of Caceres, Petitioner, vs. REGINO PANTE, Respondent. DECISION BRION, J.: Through a petition for review on certiorari,1 the petitioner Roman Catholic Church (Church) seeks to set aside the May 18, 2006 decision2 and the August 11, 2006 resolution3 of the Court of Appeals (CA) in CAG.R.-CV No. 65069. The CA reversed the July 30, 1999 decision4 of the Regional Trial Court (RTC) of Naga City, Branch 24, in Civil Case No. 94-3286. THE FACTUAL ANTECEDENTS The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot that measured 2x16 meters located in Barangay Dinaga, Canaman, Camarines Sur.5 On September 25, 1992, the Church contracted with respondent Regino Pante for the sale of the lot (thru a Contract to Sell and to Buy6) on the belief that the latter was an actual occupant of the lot. The contract between them fixed the purchase price at P11,200.00, with the initial P1,120.00 payable as down payment, and the remaining balance payable in three years or until September 25, 1995. On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi (spouses Rubi) a 215square meter lot that included the lot previously sold to Pante. The spouses Rubi asserted their ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante and his familys access from their family home to the municipal road. As no settlement could be reached between the parties, Pante instituted with the RTC an action to annul the sale between the Church and the spouses Rubi, insofar as it included the lot previously sold to him.7 The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante. The Church alleged that its consent to the contract was obtained by fraud when Pante, in bad faith, misrepresented that he had been an actual occupant of the lot sold to him, when in truth, he was merely using the 32-square meter lot as a passageway from his house to the town proper. It contended that it was its policy to sell its lots only to actual occupants. Since the spouses Rubi and their predecessors-in-interest have long been occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the Church claimed that the spouses Rubi were the rightful buyers. During pre-trial, the following admissions and stipulations of facts were made: 1. The lot claimed by Pante is a strip of land measuring only 2x16 meters; 2. The lot had been sold by the Church to Pante on September 25, 1992; 3. The lot was included in the sale to the spouses Rubi by the Church; and 4. Pante expressly manifested and represented to the Church that he had been actually occupying the lot he offered to buy.8 In a decision dated July 30, 1999, 9 the RTC ruled in favor of the Church, finding that the Churchs consent to the sale was secured through Pantes misrepresentation that he was an occupant of the 32-square meter lot. Contrary to his claim, Pante was only using the lot as a passageway; the Churchs policy, however, was to sell its lots only to those who actually occupy and reside thereon. As the Churchs consent

was secured through its mistaken belief that Pante was a qualified "occupant," the RTC annulled the contract between the Church and Pante, pursuant to Article 1390 of the Civil Code.10 The RTC further noted that full payment of the purchase price was made only on September 23, 1995, when Pante consigned the balance of P10,905.00 with the RTC, after the Church refused to accept the tendered amount. It considered the three-year delay in completing the payment fatal to Pantes claim over the subject lot; it ruled that if Pante had been prompt in paying the price, then the Church would have been estopped from selling the lot to the spouses Rubi. In light of Pantes delay and his admission that the subject lot had been actually occupied by the spouses Rubis predecessors, the RTC upheld the sale in favor of the spouses Rubi. Pante appealed the RTCs decision with the CA. In a decision dated May 18, 2006,11 the CA granted Pantes appeal and reversed the RTCs ruling. The CA characterized the contract between Pante and the Church as a contract of sale, since the Church made no express reservation of ownership until full payment of the price is made. In fact, the contract gave the Church the right to repurchase in case Pante fails to pay the installments within the grace period provided; the CA ruled that the right to repurchase is unnecessary if ownership has not already been transferred to the buyer. Even assuming that the contract had been a contract to sell, the CA declared that Pante fulfilled the condition precedent when he consigned the balance within the three-year period allowed under the parties agreement; upon full payment, Pante fully complied with the terms of his contract with the Church. After recognizing the validity of the sale to Pante and noting the subsequent sale to the spouses Rubi, the CA proceeded to apply the rules on double sales in Article 1544 of the Civil Code: Article 1544. 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 movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis ours.] Since neither of the two sales was registered, the CA upheld the full effectiveness of the sale in favor of Pante who first possessed the lot by using it as a passageway since 1963. The Church filed the present petition for review on certiorari under Rule 45 of the Rules of Court to contest the CAs ruling. THE PETITION The Church contends that the sale of the lot to Pante is voidable under Article 1390 of the Civil Code, which states: Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. [Emphasis ours.] It points out that, during trial, Pante already admitted knowing that the spouses Rubi have been residing on the lot. Despite this knowledge, Pante misrepresented himself as an occupant because he knew of the Churchs policy to sell lands only to occupants or residents thereof. It thus claims that Pantes misrepresentation effectively vitiated its consent to the sale; hence, the contract should be nullified. For the Church, the presence of fraud and misrepresentation that would suffice to annul the sale is the primary issue that the tribunals below should have resolved. Instead, the CA opted to characterize the

contract between the Church and Pante, considered it as a contract of sale, and, after such characterization, proceeded to resolve the case in Pantes favor. The Church objects to this approach, on the principal argument that there could not have been a contract at all considering that its consent had been vitiated. THE COURTS RULING The Court resolves to deny the petition. No misrepresentation existed vitiating the sellers consent and invalidating the contract Consent is an essential requisite of contracts 12 as it pertains to the meeting of the offer and the acceptance upon the thing and the cause which constitute the contract.13 To create a valid contract, the meeting of the minds must be free, voluntary, willful and with a reasonable understanding of the various obligations the parties assumed for themselves.14 Where consent, however, is given through mistake, violence, intimidation, undue influence, or fraud, the contract is deemed voidable. 15 However, not every mistake renders a contract voidable. The Civil Code clarifies the nature of mistake that vitiates consent: Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. [Emphasis ours.] For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur: 1. the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and 2. the identity or qualification must have been the principal consideration for the celebration of the contract.16 In the present case, the Church contends that its consent to sell the lot was given on the mistaken impression arising from Pantes fraudulent misrepresentation that he had been the actual occupant of the lot. Willful misrepresentation existed because of its policy to sell its lands only to their actual occupants or residents. Thus, it considers the buyers actual occupancy or residence over the subject lot a qualification necessary to induce it to sell the lot. Whether the facts, established during trial, support this contention shall determine if the contract between the Church and Pante should be annulled. In the process of weighing the evidentiary value of these established facts, the courts should consider both the parties objectives and the subjective aspects of the transaction, specifically, the parties circumstances their condition, relationship, and other attributes and their conduct at the time of and subsequent to the contract. These considerations will show what influence the alleged error exerted on the parties and their intelligent, free, and voluntary consent to the contract.17 Contrary to the Churchs contention, the actual occupancy or residency of a buyer over the land does not appear to be a necessary qualification that the Church requires before it could sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided on the lot. We note in this regard that the lot was only a 2x16-meter strip of rural land used as a passageway from Pantes house to the municipal road. We find well-taken Pantes argument that, given the size of the lot, it could serve no other purpose than as a mere passageway; it is unthinkable to consider that a 2x16-meter strip of land could be mistaken as anyones residence. In fact, the spouses Rubi were in possession of the adjacent lot, but they never asserted possession over the 2x16-meter lot when the 1994 sale was made in their favor; it was only then that they constructed the concrete fence blocking the passageway. We find it unlikely that Pante could successfully misrepresent himself as the actual occupant of the lot; this was a fact that the Church (which has a parish chapel in the same barangay where the lot was located)

could easily verify had it conducted an ocular inspection of its own property. The surrounding circumstances actually indicate that the Church was aware that Pante was using the lot merely as a passageway. The above view is supported by the sketch plan, 18 attached to the contract executed by the Church and Pante, which clearly labeled the 2x16-meter lot as a "RIGHT OF WAY"; below these words was written the name of "Mr. Regino Pante." Asked during cross-examination where the sketch plan came from, Pante answered that it was from the Archbishops Palace; neither the Church nor the spouses Rubi contradicted this statement.19 The records further reveal that the sales of the Churchs lots were made after a series of conferences with the occupants of the lots.20 The then parish priest of Canaman, Fr. Marcaida, was apparently aware that Pante was not an actual occupant, but nonetheless, he allowed the sale of the lot to Pante, subject to the approval of the Archdioceses Oeconomous. Relying on Fr. Marcaidas recommendation and finding nothing objectionable, Fr. Ragay (the Archdioceses Oeconomous) approved the sale to Pante. The above facts, in our view, establish that there could not have been a deliberate, willful, or fraudulent act committed by Pante that misled the Church into giving its consent to the sale of the subject lot in his favor. That Pante was not an actual occupant of the lot he purchased was a fact that the Church either ignored or waived as a requirement. In any case, the Church was by no means led to believe or do so by Pantes act; there had been no vitiation of the Churchs consent to the sale of the lot to Pante. From another perspective, any finding of bad faith, if one is to be made, should be imputed to the Church. Without securing a court ruling on the validity of its contract with Pante, the Church sold the subject property to the spouses Rubi. Article 1390 of the Civil Code declares that voidable contracts are binding, unless annulled by a proper court action. From the time the sale to Pante was made and up until it sold the subject property to the spouses Rubi, the Church made no move to reject the contract with Pante; it did not even return the down payment he paid. The Churchs bad faith in selling the lot to Rubi without annulling its contract with Pante negates its claim for damages. In the absence of any vitiation of consent, the contract between the Church and Pante stands valid and existing. Any delay by Pante in paying the full price could not nullify the contract, since (as correctly observed by the CA) it was a contract of sale. By its terms, the contract did not provide a stipulation that the Church retained ownership until full payment of the price. 21 The right to repurchase given to the Church in case Pante fails to pay within the grace period provided22 would have been unnecessary had ownership not already passed to Pante. The rule on double sales The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called for the application of the rules in Article 1544 of the Civil Code: Article 1544. 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 movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis ours.] As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is who, between the two, was first in possession of the property in good faith.
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Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and constructive delivery.23 Under either mode of delivery, the facts show that Pante was the first to acquire possession of the lot. Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee.24 Pante claimed that he had been using the lot as a passageway, with the Churchs permission,

since 1963. After purchasing the lot in 1992, he continued using it as a passageway until he was prevented by the spouses Rubis concrete fence over the lot in 1994. Pantes use of the lot as a passageway after the 1992 sale in his favor was a clear assertion of his right of ownership that preceded the spouses Rubis claim of ownership.
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Pante also stated that he had placed electric connections and water pipes on the lot, even before he purchased it in 1992, and the existence of these connections and pipes was known to the spouses Rubi.25 Thus, any assertion of possession over the lot by the spouses Rubi (e.g., the construction of a concrete fence) would be considered as made in bad faith because works had already existed on the lot indicating possession by another. "[A] buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property."26 Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that: Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. Under this provision, the sale in favor of Pante would have to be upheld since the contract executed between the Church and Pante was duly notarized, converting the deed into a public instrument. 27 In Navera v. Court of Appeals,28 the Court ruled that: [A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not transmit anything to the second vendee, and if the latter, by virtue of this second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights of the thing lawfully acquired by the first vendee. Thus, under either mode of delivery, Pante acquired prior possession of the lot. WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of the Court of Appeals dated May 18, 2006, and its resolution dated August 11, 2006, issued in CA-G.R.-CV No. 65069. Costs against the Roman Catholic Church. SO ORDERED.

****

Contracts; double sales; possession; actual and physical delivery. A double sale calls for the application of the rules in Article 1544 of the Civil Code, to wit: 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 movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and constructive delivery. Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee. Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that: When the sale is made through

a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012.

Damages; interest in case of breach of contract; interest rate. Interest may be imposed even in the absence of stipulation in the contract because Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in accordance with the stipulation of the parties. Absent any stipulation, the applicable rate of interest shall be 12% per annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%). In this case, the parties did not stipulate as to the applicable rate of interest. The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller must return the payment made by the buyer if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller has admitted this. Notwithstanding demand by the buyer, the seller has failed to return the money and should be considered in default from the time that demand was made. Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%. Forbearance is a contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. Forbearance of money, goods or credits refers to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. Hermojina Estores vs. Spouses Arturo and Laura Supangan G.R. No. 175139, April 18, 2012.G: G.R. No. 175139 April 18, 2012

HERMOJINA ESTORES, Petitioner, vs. SPOUSES ARTURO and LAURA SUPANGAN, Respondents. DECISION DEL CASTILLO, J.: The only issue posed before us is the propriety of the imposition of interest and attorneys fees. Assailed in this Petition for Review1 filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads: WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time the judgment becomes final and executory until it is fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the defendants-appellants. SO ORDERED.3

Also assailed is the August 31, 2006 Resolution4 denying the motion for reconsideration. Factual Antecedents On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into a Conditional Deed of Sale5 whereby petitioner offered to sell, and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum ofP4.7 million. The parties likewise stipulated, among others, to wit: xxxx 1. Vendor will secure approved clearance from DAR requirements of which are (sic): a) Letter request b) Title c) Tax Declaration d) Affidavit of Aggregate Landholding Vendor/Vendee e) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendee f) Affidavit of Non-Tenancy g) Deed of Absolute Sale xxxx 4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the documents. xxxx 6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall be moved outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such agreement is carried out before full payment of the sale is made by vendee. 7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to complete payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor fails to complete necessary documents within thirty days without any sufficient reason, or without informing the vendee of its status, vendee has the right to demand return of full amount of down payment. xxxx 9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately of its approval by the LRC. 10. The vendor assures the vendee of a peaceful transfer of ownership. xxxx6 After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter 7 dated September 27, 2000, respondent-spouses demanded the return of the amount of P3.5 million within 15 days from receipt of the letter. In reply, 8petitioner acknowledged receipt of the P3.5 million and promised to return the same within 120 days. Respondent-spouses were amenable to the proposal provided an interest of 12% compounded annually shall be imposed on the P3.5 million.9 When petitioner still failed to return the amount despite demand, respondent-spouses were constrained to file a Complaint10 for sum of money before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioners agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-spouses prayed that petitioner and Arias be ordered to:

1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting October 1, 1993 or an estimated amount of P8,558,591.65; 2. Pay the following items of damages: a) Moral damages in the amount of P100,000.00; b) Actual damages in the amount of P100,000.00; c) Exemplary damages in the amount of P100,000.00; d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petitioner]. e) [C]ost of suit.11 In their Answer with Counterclaim,12 petitioner and Arias averred that they are willing to return the principal amount of P3.5 million but without any interest as the same was not agreed upon. In their Pre-Trial Brief,13 they reiterated that the only remaining issue between the parties is the imposition of interest. They argued that since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cannot be held liable to pay legal interest as well.14 In its Pre-Trial Order15 dated June 29, 2001, the RTC noted that "the parties agreed that the principal amount of 3.5 million pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x x [respondent-spouses] are entitled to legal interest thereon, damages and attorneys fees."16 Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court set the presentation of Arias and petitioners evidence on September 3, 2003.17 However, despite several postponements, petitioner and Arias failed to appear hence they were deemed to have waived the presentation of their evidence. Consequently, the case was deemed submitted for decision.18 Ruling of the Regional Trial Court On May 7, 2004, the RTC rendered its Decision 19 finding respondent-spouses entitled to interest but only at the rate of 6% per annum and not 12% as prayed by them. 20 It also found respondent-spouses entitled to attorneys fees as they were compelled to litigate to protect their interest.21 The dispositive portion of the RTC Decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly and severally: 1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pesos (P3,500,000.00) with an interest of 6% compounded annually starting October 1, 1993 and attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the suit. The Compulsory Counter Claim is hereby dismissed for lack of factual evidence. SO ORDERED.22 Ruling of the Court of Appeals Aggrieved, petitioner and Arias filed their notice of appeal.23 The CA noted that the only issue submitted for its resolution is "whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of money in the absence of stipulation of the parties."24 On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6% interest proper.25 However, the same shall start to run only from September 27, 2000 when respondent-spouses formally demanded the return of their money and not from October 1993 when the contract was executed as held by the RTC. The CA also modified the RTCs ruling as regards the liability of Arias. It held that Arias could not be held solidarily liable with petitioner because he merely acted as agent of the latter. Moreover, there was no showing that he expressly bound himself to be personally liable or that he exceeded the limits of his authority. More importantly, there was even no showing that Arias

was authorized to act as agent of petitioner.26Anent the award of attorneys fees, the CA found the award by the trial court (P50,000.00 plus 20% of the recoverable amount) excessive 27 and thus reduced the same to P100,000.00.28 The dispositive portion of the CA Decision reads: WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time the judgment becomes final and executory until it is fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner]. SO ORDERED.29 Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA. Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is proper. Petitioners Arguments Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of Sale only provided for the return of the downpayment in case of failure to comply with her obligations. Petitioner also argues that the award of attorneys fees in favor of the respondent-spouses is unwarranted because it cannot be said that the latter won over the former since the CA even sustained her contention that the imposition of 12% interest compounded annually is totally uncalled for. Respondent-spouses Arguments Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering that petitioner failed to return the amount upon demand and had been using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to perform her obligations to relocate the house outside the perimeter of the subject property and to complete the necessary documents. As regards the attorneys fees, they claim that they are entitled to the same because they were forced to litigate when petitioner unjustly withheld the amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees they paid. Our Ruling The petition lacks merit. Interest may be imposed even in the absence of stipulation in the contract. We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithstanding the absence of stipulation in the contract. Article 2210 of the Civil Code expressly provides that "[i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract." In this case, there is no question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She has in fact admitted that the conditions were not fulfilled and that she was willing to return the full amount of P3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the time it was given to her 30 until now. Thus, she is already in default of her obligation from the date of demand, i.e., on September 27, 2000. The interest at the rate of 12% is applicable in the instant case. Anent the interest rate, the general rule is that the applicable rate of interest "shall be computed in accordance with the stipulation of the parties."31 Absent any stipulation, the applicable rate of interest shall be 12% per annum "when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%)." 32 In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due. The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller (petitioner) must return the payment made by the buyer (respondentspouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as

the seller (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the money and should be considered in default from the time that demand was made on September 27, 2000. Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%? We believe so. In Crismina Garments, Inc. v. Court of Appeals,33 "forbearance" was defined as a "contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debtthen due and payable." This definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, "forbearance of money, goods or credits" will have no distinct definition from a loan. We believe however, that the phrase "forbearance of money, goods or credits" is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code. 34 Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan. Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of money which can be considered as an involuntary loan. Thus, the applicable rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,35cited in Crismina Garments, Inc. v. Court of Appeals,36 the Court suggested the following guidelines: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,

shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.37 Eastern Shipping Lines, Inc. v. Court of Appeals38and its predecessor case, Reformina v. Tongol39 both involved torts cases and hence, there was no forbearance of money, goods, or credits. Further, the amount claimed (i.e., damages) could not be established with reasonable certainty at the time the claim was made. Hence, we arrived at a different ruling in those cases. Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of 12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied.
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The award of attorneys fees is warranted. Under Article 2208 of the Civil Code, attorneys fees may be recovered: xxxx (2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; xxxx (11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In all cases, the attorneys fees and expenses of litigation must be reasonable. Considering the circumstances of the instant case, we find respondent-spouses entitled to recover attorneys fees. There is no doubt that they were forced to litigate to protect their interest, i.e., to recover their money. However, we find the amount of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the Civil Code that the award of attorneys fees must always be reasonable. WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The award of attorneys fees is further reduced toP50,000.00. SO ORDERED.

Sale; rescission for breach of obligation to deliver; constructive delivery, execution of public instrument. A party is entitled to demand for the rescission of their contract for the failure to deliver the physical possession of the subject property and the certificate of title covering the same notwithstanding the absence of stipulations in the agreement expressly indicating the consequences of such omission, pursuant to Article 1191 of the NCC, which states that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is created as the respondent failed to take material possession of the subject property. There is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made. As a general rule, the execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is created in cases where the buyer fails to take material possession of the subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.Villamar vs. Mangaoil; G.R. No. 188661, April 11, 2012. G.R. No. 188661 April 11, 2012

ESTELITA VILLAMAR, Petitioner, vs. BALBINO MANGAOIL, Respondent. DECISION REYES, J.: The Case Before us is a petition for review on certiorari1 under Rule 45 of the Rules of Court filed by Estelita Villamar (Villamar) to assail the Decision2 rendered by the Court of Appeals (CA) on February 20, 2009 in CA-G.R. CV No. 86286, the dispositive portion of which reads: WHEREFORE, the instant appeal is DISMISSED. The assailed decision is AFFIRMED in toto. SO ORDERED.3

The resolution4 issued by the CA on July 8, 2009 denied the petitioner's motion for reconsideration to the foregoing. The ruling5 of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela, which was affirmed by the CA in the herein assailed decision and resolution, ordered the (1) rescission of the contract of sale of real property entered into by Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down payment made relative to the said contract. Antecedents Facts The CA aptly summarized as follows the facts of the case prior to the filing by Mangaoil of the complaint6 for rescission of contract before the RTC: Villamar is the registered owner of a 3.6080 hectares parcel of land [hereinafter referred as the subject property] in San Francisco, Manuel, Isabela covered by Transfer Certificate of Title (TCT) No. T-92958-A. On March 30, 1998, she entered into an Agreement with Mangaoil for the purchase and sale of said parcel of land, under the following terms and conditions: "1. The price of the land is ONE HUNDRED AND EIGHTY THOUSAND (180,000.00) PESOS per hectare but only the 3.5000 hec. shall be paid and the rest shall be given free, so that the total purchase or selling price shall be [P]630,000.00 only; 2. ONE HUNDRED EIGHTY FIVE THOUSAND (185,000.00) PESOS of the total price was already received on March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of the Rural Bank of Cauayan , San Manuel Branch, San Manuel, Isabela [Rural Bank of Cauayan], in order that the certificate of title thereof be withdrawn and released from the said bank, and the rest shall be for the payment of the mortgag[e]s in favor of Romeo Lacaden and Florante Parangan; 3. After the release of the certificate of title covering the land subject-matter of this agreement, the necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the transfer be immediately effected so that the latter can apply for a loan from any lending institution using the corresponding certificate of title as collateral therefor, and the proceeds of the loan, whatever be the amount, be given to the PARTY OF THE FIRST PART; 4. Whatever balance left from the agreed purchase price of the land subject matter hereof after deducting the proceed of the loan and the [P]185,000.00 already received as above-mentioned, the PARTY OF THE SECOND PART shall pay unto the PARTY OF THE FIRST PART not later than June 30, 1998 and thereafter the parties shall be released of any obligations for and against each other; xxx" On April 1, 1998, the parties executed a Deed of Absolute Sale whereby Villamar (then Estelita Bernabe) transferred the subject parcel of land to Mangaoil for and in consideration of [P]150,000.00. In a letter dated September 18, 1998, Mangaoil informed Villamar that he was backing out from the sale agreed upon giving as one of the reasons therefor: "3. That the area is not yet fully cleared by incumbrances as there are tenants who are not willing to vacate the land without giving them back the amount that they mortgaged the land." Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said demand in another letter dated April 29, 1999, the same, however, was unheeded.7 x x x (Citations omitted) On January 28, 2002, the respondent filed before the RTC a complaint 8 for rescission of contract against the petitioner. In the said complaint, the respondent sought the return ofP185,000.00 which he paid to the petitioner, payment of interests thereon to be

computed from March 27, 1998 until the suit's termination, and the award of damages, costs andP20,000.00 attorney's fees. The respondent's factual allegations were as follows: 5. That as could be gleaned the "Agreement" (Annex "A"), the plaintiff [Mangaoil] handed to the defendant [Villamar] the sum of [P]185,000.00 to be applied as follows; [P]80,000 was for the redemption of the land which was mortgaged to the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, to enable the plaintiff to get hold of the title and register the sale x x x and [P]105,000.00 was for the redemption of the said land from private mortgages to enable plaintiff to posses[s] and cultivate the same; 6. That although the defendant had already long redeemed the said land from the said bank and withdrawn TCT No. T-92958-A, she has failed and refused, despite repeated demands, to hand over the said title to the plaintiff and still refuses and fails to do so; 7. That, also, the plaintiff could not physically, actually and materially posses[s] and cultivate the said land because the private mortgage[e]s and/or present possessors refuse to vacate the same; xxxx 11. That on September 18, 1998, the plaintiff sent a letter to the defendant demanding a return of the amount so advanced by him, but the latter ignored the same, x x x; 12. That, again, on April 29, 1999, the plaintiff sent to the defendant another demand letter but the latter likewise ignored the same, x x x; 13. That, finally, the plaintiff notified the defendant by a notarial act of his desire and intention to rescind the said contract of sale, xxx; x x x x.9 (Citations omitted) In the respondents answer to the complaint, she averred that she had complied with her obligations to the respondent. Specifically, she claimed having caused the release of TCT No. T-92958-A by the Rural Bank of Cauayan and its delivery to a certain "Atty. Pedro C. Antonio" (Atty. Antonio). The petitioner alleged that Atty. Antonio was commissioned to facilitate the transfer of the said title in the respondent's name. The petitioner likewise insisted that it was the respondent who unceremoniously withdrew from their agreement for reasons only the latter knew. The Ruling of the RTC On September 9, 2005, the RTC ordered the rescission of the agreement and the deed of absolute sale executed between the respondent and the petitioner. The petitioner was, thus directed to return to the respondent the sum of P185,000.00 which the latter tendered as initial payment for the purchase of the subject property. The RTC ratiocinated that: There is no dispute that the defendant sold the LAND to the plaintiff for [P]630,000.00 with down payment of [P]185,000.00. There is no evidence presented if there were any other partial payments made after the perfection of the contract of sale. 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 therefore a price certain in money or its equivalent." As such, in a contract of sale, the obligation of the vendee to pay the price is correlative of the obligation of the vendor to deliver the thing sold. It created or established at the same time, out of the same course, and which result in mutual relations of creditor and debtor between the parties. The claim of the plaintiff that the LAND has not been delivered to him was not refuted by the defendant. Considering that defendant failed to deliver to him the certificate of title and of the possession over the LAND to the plaintiff, the contract must be rescinded pursuant to Article 1191 of the Civil Code which, in part, provides:

"Art. 1191. The power of rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him."10 The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed error on the part of the RTC when the latter ruled that the agreement and deed of sale executed by and between the parties can be rescinded as she failed to deliver to the respondent both the subject property and the certificate of title covering the same. The Ruling of the CA On February 20, 2009, the CA rendered the now assailed decision dismissing the petitioners appeal based on the following grounds: Burden of proof is the duty of a party to prove the truth of his claim or defense, or any fact in issue necessary to establish his claim or defense by the amount of evidence required by law. In civil cases, the burden of proof is on the defendant if he alleges, in his answer, an affirmative defense, which is not a denial of an essential ingredient in the plaintiff's cause of action, but is one which, if established, will be a good defense i.e., an "avoidance" of the claim, which prima facie, the plaintiff already has because of the defendant's own admissions in the pleadings. Defendant-appellant Villamar's defense in this case was an affirmative defense. She did not deny plaintiffappellees allegation that she had an agreement with plaintiff-appellee for the sale of the subject parcel of land. Neither did she deny that she was obliged under the contract to deliver the certificate of title to plaintiff-appellee immediately after said title/property was redeemed from the bank. What she rather claims is that she already complied with her obligation to deliver the title to plaintiff-appellee when she delivered the same to Atty. Antonio as it was plaintiff-appellee himself who engaged the services of said lawyer to precisely work for the immediate transfer of said title in his name. Since, however, this affirmative defense as alleged in defendant-appellant's answer was not admitted by plaintiff-appellee, it then follows that it behooved the defendant-appellant to prove her averments by preponderance of evidence. Yet, a careful perusal of the record shows that the defendant-appellant failed to sufficiently prove said affirmative defense. She failed to prove that in the first place, "Atty. Antonio" existed to receive the title for and in behalf of plaintiff-appellee. Worse, the defendant-appellant failed to prove that Atty. Antonio received said title "as allegedly agreed upon." We likewise sustain the RTC's finding that defendant-appellant V[i]llamar failed to deliver possession of the subject property to plaintiff-appellee Mangaoil. As correctly observed by the RTC - "[t]he claim of the plaintiff that the land has not been delivered to him was not refuted by the defendant." Not only that. On cross-examination, the defendant-appellant gave Us insight on why no such delivery could be made, viz.: "x x x x Q: So, you were not able to deliver this property to Mr. Mangaoil just after you redeem the property because of the presence of these two (2) persons, is it not? xxx A: Yes, sir. Q: Forcing you to file the case against them and which according to you, you have won, is it not? A: Yes, sir. Q: And now at present[,] you are in actual possession of the land? A: Yes, sir. x x x" With the foregoing judicial admission, the RTC could not have erred in finding that defendant-[appellant] failed to deliver the possession of the property sold, to plaintiff-appellee. Neither can We agree with defendant-appellant in her argument that the execution of the Deed of Absolute Sale by the parties is already equivalent to a valid and constructive delivery of the property to plaintiff-

appellee. Not only is it doctrinally settled that in a contract of sale, the vendor is bound to transfer the ownership of, and to deliver the thing that is the object of the sale , the way Article 1547 of the Civil Code is worded, viz.: "Art. 1547. In a contract of sale, unless a contrary intention appears, there is: (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing; (2) An implied warranty that the thing shall be free from any hidden defaults or defects, or any change or encumbrance not declared or known to the buyer. x x x." shows that actual, and not mere constructive delivery is warrantied by the seller to the buyer. "(P)eaceful possession of the thing" sold can hardly be enjoyed in a mere constructive delivery. The obligation of defendant-appellant Villamar to transfer ownership and deliver possession of the subject parcel of land was her correlative obligation to plaintiff-appellee in exchange for the latter's purchase price thereof. Thus, if she fails to comply with what is incumbent upon her, a correlative right to rescind such contract from plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code.11 x x x (Citations omitted) The Issues Aggrieved, the petitioner filed before us the instant petition and submits the following issues for resolution: I. WHETHER THE FAILURE OF PETITIONER-SELLER TO DELIVER THE CERTIFICATE OF TITLE OVER THE PROPERTY TO RESPONDENT-BUYER IS A BREACH OF OBLIGATION IN A CONTRACT OF SALE OF REAL PROPERTY THAT WOULD WARRANT RESCISSION OF THE CONTRACT; II. WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A CONTRACT OF SALE FOR FAILURE OF RESPONDENT[-]BUYER TO IMMEDIATELY TAKE ACTUAL POSSESSION OF THE PROPERTY NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE CONTRACT PROVIDING FOR THE SAME; III. WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY IN THE PRESENT CASE IS ALREADY EQUIVALENT TO A VALID AND CONSTRUCTIVE DELIVERY OF THE PROPERTY TO THE BUYER; IV. WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF THIS CASE SHOULD BE RESCINDED ON SLIGHT OR CASUAL BREACH; V. WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE RTC ORDERING THE RESCISSION OF THE CONTRACT OF SALE[.]12 The Petitioner's Arguments

The petitioner avers that the CA, in ordering the rescission of the agreement and deed of sale, which she entered into with the respondent, on the basis of her alleged failure to deliver the certificate of title, effectively imposed upon her an extra duty which was neither stipulated in the contract nor required by law. She argues that under Articles 149513 and 149614 of the New Civil Code (NCC), the obligation to deliver the thing sold is complied with by a seller who executes in favor of a buyer an instrument of sale in a public document. Citing Chua v. Court of Appeals,15 she claims that there is a distinction between transferring a certificate of title in the buyer's name, on one hand, and transferring ownership over the property sold, on the other. The latter can be accomplished by the seller's execution of an instrument of sale in a public document. The recording of the sale with the Registry of Deeds and the transfer of the certificate of title in the buyer's name are necessary only to bind third parties to the transfer of ownership.16 The petitioner contends that in her case, she had already complied with her obligations under the agreement and the law when she had caused the release of TCT No. T-92958-A from the Rural Bank of Cauayan, paid individual mortgagees Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and executed an absolute deed of sale in the respondent's favor. She adds that before T-92958-A can be cancelled and a new one be issued in the respondent's favor, the latter decided to withdraw from their agreement. She also points out that in the letters seeking for an outright rescission of their agreement sent to her by the respondent, not once did he demand for the delivery of TCT. The petitioner insists that the respondent's change of heart was due to (1) the latter's realization of the difficulty in determining the subject property's perimeter boundary; (2) his doubt that the property he purchased would yield harvests in the amount he expected; and (3) the presence of mortgagees who were not willing to give up possession without first being paid the amounts due to them. The petitioner contends that the actual reasons for the respondent's intent to rescind their agreement did not at all constitute a substantial breach of her obligations. The petitioner stresses that under Article 1498 of the NCC, when a sale is made through a public instrument, its execution is equivalent to the delivery of the thing which is the contract's object, unless in the deed, the contrary appears or can be inferred. Further, in Power Commercial and Industrial Corporation v. CA,17 it was ruled that the failure of a seller to eject lessees from the property he sold and to deliver actual and physical possession, cannot be considered a substantial breach, when such failure was not stipulated as a resolutory or suspensive condition in the contract and when the effects and consequences of the said failure were not specified as well. The execution of a deed of sale operates as a formal or symbolic delivery of the property sold and it already authorizes the buyer to use the instrument as proof of ownership.18 The petitioner argues that in the case at bar, the agreement and the absolute deed of sale contains no stipulation that she was obliged to actually and physically deliver the subject property to the respondent. The respondent fully knew Lacaden's and Parangan's possession of the subject property. When they agreed on the sale of the property, the respondent consciously assumed the risk of not being able to take immediate physical possession on account of Lacaden's and Parangan's presence therein. The petitioner likewise laments that the CA allegedly misappreciated the evidence offered before it when it declared that she failed to prove the existence of Atty. Antonio. For the record, she emphasizes that the said lawyer prepared and notarized the agreement and deed of absolute sale which were executed between the parties. He was also the petitioners counsel in the proceedings before the RTC. Atty. Antonio was also the one asked by the respondent to cease the transfer of the title over the subject property in the latter's name and to return the money he paid in advance. The Respondent's Contentions In the respondent's comment,19 he seeks the dismissal of the instant petition. He invokes Articles 1191 and 1458 to argue that when a seller fails to transfer the ownership and possession of a property sold, the buyer is entitled to rescind the contract of sale. Further, he contends that the execution of a deed of absolute sale does not necessarily amount to a valid and constructive delivery. In Masallo v. Cesar,20 it was ruled that a person who does not have actual possession of real property cannot transfer constructive possession by the execution and delivery of a public document by which the title to the land is transferred. In Addison v. Felix and Tioco,21 the Court was emphatic that symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when the thing sold is subject to the control of the vendor.

Our Ruling The instant petition is bereft of merit. There is only a single issue for resolution in the instant petition, to wit, whether or not the failure of the petitioner to deliver to the respondent both the physical possession of the subject property and the certificate of title covering the same amount to a substantial breach of the former's obligations to the latter constituting a valid cause to rescind the agreement and deed of sale entered into by the parties. We rule in the affirmative. The RTC and the CA both found that the petitioner failed to comply with her obligations to deliver to the respondent both the possession of the subject property and the certificate of title covering the same. Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally require the seller to deliver to the buyer the physical possession of the property subject of a contract of sale and the certificate of title covering the same, the agreement entered into by the petitioner and the respondent provides otherwise. However, the terms of the agreement cannot be considered as violative of law, morals, good customs, public order, or public policy, hence, valid. Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a determinate thing to the buyer, who shall in turn pay therefor a price certain in money or its equivalent. In addition thereto, Article 1495 of the NCC binds the seller to warrant the thing which is the object of the sale. On the other hand, Article 1498 of the same code provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear or cannot clearly be inferred. In the case of Chua v. Court of Appeals,22 which was cited by the petitioner, it was ruled that "when the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer."23 The transfer of the certificate of title in the name of the buyer is not necessary to confer ownership upon him. In the case now under our consideration, item nos. 2 and 3 of the agreement entered into by the petitioner and the respondent explicitly provide: 2. ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS of the total price was already received on March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, in order that the certificate of title thereof be withdrawn and released from the said bank, and the rest shall be for the payment of the mortgages in favor of Romeo Lacaden and Florante Parangan; 3. After the release of the certificate of title covering the land subject-matter of this agreement, the necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the transfer be immediately effected so that the latter can apply for a loan from any lending institution using the corresponding certificate of title as collateral therefor, and the proceeds of the loan, whatever be the amount, be given to the PARTY OF THE FIRST PART;24 (underlining supplied) As can be gleaned from the agreement of the contending parties, the respondent initially paid the petitionerP185,000.00 for the latter to pay the loan obtained from the Rural Bank of Cauayan and to cause the release from the said bank of the certificate of title covering the subject property. The rest of the amount shall be used to pay the mortgages over the subject property which was executed in favor of Lacaden and Parangan. After the release of the TCT, a deed of sale shall be executed and transfer shall be immediately effected so that the title covering the subject property can be used as a collateral for a loan the respondent will apply for, the proceeds of which shall be given to the petitioner. Under Article 1306 of the NCC, 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.

While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case of Chua do not impose upon the petitioner the obligation to physically deliver to the respondent the certificate of title covering the subject property or cause the transfer in the latter's name of the said title, a stipulation requiring otherwise is not prohibited by law and cannot be regarded as violative of morals, good customs, public order or public policy. Item no. 3 of the agreement executed by the parties expressly states that "transfer [shall] be immediately effected so that the latter can apply for a loan from any lending institution using the corresponding certificate of title as collateral therefore." Item no. 3 is literal enough to mean that there should be physical delivery of the TCT for how else can the respondent use it as a collateral to obtain a loan if the title remains in the petitioners possession. We agree with the RTC and the CA that the petitioner failed to prove that she delivered the TCT covering the subject property to the respondent. What the petitioner attempted to establish was that she gave the TCT to Atty. Antonio whom she alleged was commissioned to effect the transfer of the title in the respondent's name. Although Atty. Antonio's existence is certain as he was the petitioners counsel in the proceedings before the RTC, there was no proof that the former indeed received the TCT or that he was commissioned to process the transfer of the title in the respondent's name. It is likewise the petitioners contention that pursuant to Article 1498 of the NCC, she had already complied with her obligation to deliver the subject property upon her execution of an absolute deed of sale in the respondents favor. The petitioner avers that she did not undertake to eject the mortgagors Parangan and Lacaden, whose presence in the premises of the subject property was known to the respondent. We are not persuaded. In the case of Power Commercial and Industrial Corporation25 cited by the petitioner, the Court ruled that the failure of the seller to eject the squatters from the property sold cannot be made a ground for rescission if the said ejectment was not stipulated as a condition in the contract of sale, and when in the negotiation stage, the buyer's counsel himself undertook to eject the illegal settlers. The circumstances surrounding the case now under our consideration are different. In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid to the petitioner shall be used to pay the mortgagors, Parangan and Lacaden. While the provision does not expressly impose upon the petitioner the obligation to eject the said mortgagors, the undertaking is necessarily implied. Cessation of occupancy of the subject property is logically expected from the mortgagors upon payment by the petitioner of the amounts due to them. We note that in the demand letter26 dated September 18, 1998, which was sent by the respondent to the petitioner, the former lamented that "the area is not yet fully cleared of incumbrances as there are tenants who are not willing to vacate the land without giving them back the amount that they mortgaged the land." Further, in the proceedings before the RTC conducted after the complaint for rescission was filed, the petitioner herself testified that she won the ejectment suit against the mortgagors "only last year".27 The complaint was filed on September 8, 2002 or more than four years from the execution of the parties' agreement. This means that after the lapse of a considerable period of time from the agreement's execution, the mortgagors remained in possession of the subject property. Notwithstanding the absence of stipulations in the agreement and absolute deed of sale entered into by Villamar and Mangaoil expressly indicating the consequences of the former's failure to deliver the physical possession of the subject property and the certificate of title covering the same, the latter is entitled to demand for the rescission of their contract pursuant to Article 1191 of the NCC. We note that the agreement entered into by the petitioner and the respondent only contains three items specifying the parties' undertakings. In item no. 5, the parties consented "to abide with all the terms and conditions set forth in this agreement and never violate the same."28 Article 1191 of the NCC is clear that "the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him." The respondent cannot be deprived of his right to demand for rescission in view of the petitioners failure to abide with item nos. 2 and 3 of the agreement. This remains true notwithstanding the absence of express stipulations in the agreement indicating the consequences of breaches which the parties may commit. To hold otherwise would render Article 1191 of the NCC as useless.

Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is created as the respondent failed to take material possession of the subject property. Further, even if we were to assume for argument's sake that the agreement entered into by the contending parties does not require the delivery of the physical possession of the subject property from the mortgagors to the respondent, still, the petitioner's claim that her execution of an absolute deed of sale was already sufficient as it already amounted to a constructive delivery of the thing sold which Article 1498 of the NCC allows, cannot stand. In Philippine Suburban Development Corporation v. The Auditor General,29 we held: When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.
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In other words, there is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, x x x where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made.30 (Underlining supplied and citations omitted) Stated differently, as a general rule, the execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is created in cases where the buyer fails to take material possession of the subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the respondent the possession of the subject property due to the continued presence and occupation of Parangan and Lacaden. We find no ample reason to reverse the said findings. Considered in the light of either the agreement entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking to deliver the subject property to the respondent. IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February 20, 2009 Decision and July 8, 2009 Resolution of the Court of Appeals, directing the rescission of the agreement and absolute deed of sale entered into by Estelita Villamar and Balbino Mangaoil and the return of the down payment made for the purchase of the subject property, are AFFIRMED. However, pursuant to our ruling in Eastern Shipping Lines, Inc. v. CA,31 aninterest of 12% per annum is imposed on the sum of P185,000.00 to be returned to Mangaoil to be computed from the date of finality of this Decision until full satisfaction thereof. SO ORDERED.

Damages; negligence; proximate cause. PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss. Here, while PNB highlights Ofelias fault in accommodating a strangers check and depositing it to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice. It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. It bears stressing that the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected. PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected. With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded. Philippine National Bank vs. Spouses Cheah Chee Chong and Ofelia Camacho Cheah/Spouses Cheah Chee Chong and Ofelia Camacho Chea vs. Philippine National Bank; G.R. Nos. 170865/G.R. No. 170892, April 25, 2012. G.R. No. 170865 April 25, 2012 PHILIPPINE NATIONAL BANK, Petitioner, vs. SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Respondents. x-----------------------x G.R. No. 170892 SPOUSES CHEAH CHEE CHONG vs. PHILIPPINE NATIONAL BANK, Respondent. DEL CASTILLO, J.: Law favoreth diligence, and therefore, hateth folly and negligence.Wingates Maxim. In doing a friend a favor to help the latters friend collect the proceeds of a foreign check, a woman deposited the check in her and her husbands dollar account. The local bank accepted the check for collection and immediately credited the proceeds thereof to said spouses account even before the lapse of the clearing period. And just when the money had been withdrawn and distributed among different and OFELIA CAMACHO CHEAH, Petitioners,

DECISION

beneficiaries, it was discovered that all along, to the horror of the woman whose intention to accommodate a friends friend backfired, she and her bank had dealt with a rubber check. These consolidated1 Petitions for Review on Certiorari filed by the Philippine National Bank (PNB)2 and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses Cheah) 3 both assail the August 22, 2005 Decision4 and December 21, 2005 Resolution5of the Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both parties equally negligent and, hence, should equally suffer the resulting loss. For its part, PNB questions why it was declared blameworthy together with its depositors, spouses Cheah, for the amount wrongfully paid the latter, while the spouses Cheah plead that they be declared entirely faultless. Factual Antecedents On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a conversation in the latters office when Adelinas friend, Filipina Tuazon (Filipina), approached her to ask if she could have Filipinas check cleared and encashed for a service fee of 2.5%. The check is Bank of America Check No. 1906under the account of Alejandria Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch in California, USA, with a face amount of $300,000.00, payable to cash. Because Adelina does not have a dollar account in which to deposit the check, she asked Ofelia if she could accommodate Filipinas request since she has a joint dollar savings account with her Malaysian husband Cheah Chee Chong (Chee Chong) under Account No. 265-705612-2 with PNB Buendia Branch. Ofelia agreed. That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto Mendiola of the Loans Department who referred them to PNB Division Chief Alberto Garin (Garin). Garin discussed with them the process of clearing the subject check and they were told that it normally takes 15 days. 7 Assured that the deposit and subsequent clearance of the check is a normal transaction, Ofelia deposited Filipinas check. PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank. Five days later, PNB received a credit advice8 from Philadelphia National Bank that the proceeds of the subject check had been temporarily credited to PNBs account as of November 6, 1992. On November 16, 1992, Garin called up Ofelia to inform her that the check had already been cleared. 9 The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37 to the account of the spouses Cheah.10 Acting on Adelinas instruction to withdraw the credited amount, Ofelia that day personally withdrew $180,000.00.11 Adelina was able to withdraw the remaining amount the next day after having been authorized by Ofelia.12 Filipina received all the proceeds. In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November 16, 1992 a SWIFT13 message from Philadelphia National Bank dated November 13, 1992 with Transaction Reference Number (TRN) 46506218, informing PNB of the return of the subject check for insufficient funds.14 However, the PNB Head Office could not ascertain to which branch/office it should forward the same for proper action. Eventually, PNB Head Office sent Philadelphia National Bank a SWIFT message informing the latter that SWIFT message with TRN 46506218 has been relayed to PNBs various divisions/departments but was returned to PNB Head Office as it seemed misrouted. PNB Head Office thus requested for Philadelphia National Banks advice on said SWIFT messages proper disposition. 15 After a few days, PNB Head Office ascertained that the SWIFT message was intended for PNB Buendia Branch. PNB Buendia Branch learned about the bounced check when it received on November 20, 1992 a debit advice,16followed by a letter17 on November 24, 1992, from Philadelphia National Bank to which the November 13, 1992 SWIFT message was attached. Informed about the bounced check and upon demand by PNB Buendia Branch to return the money withdrawn, Ofelia immediately contacted Filipina to get the money back. But the latter told her that all the money had already been given to several people who asked for the checks encashment. In their effort to recover the money, spouses Cheah then sought the help of the National Bureau of Investigation. Said agencys Anti-Fraud and Action Division was later able to apprehend some of the beneficiaries of the proceeds of the check and recover from them $20,000.00. Criminal charges were then filed against these suspect beneficiaries.18

Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss matters regarding the incident and the recovery of the value of the check while the cases against the alleged perpetrators remain pending. Chee Chong in the end signed a PNB drafted19 letter20 which states that the spouses Cheah are offering their condominium units as collaterals for the amount withdrawn. Under this setup, the amount withdrawn would be treated as a loan account with deferred interest while the spouses try to recover the money from those who defrauded them. Apparently, Chee Chong signed the letter after the Vice President and Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah to help him and the other bank officers as they were in danger of losing their jobs because of the incident. Asperilla likewise assured the spouses Cheah that the letter was a mere formality and that the mortgage will be disregarded once PNB receives its claim for indemnity from Philadelphia National Bank. Although some of the officers of PNB were amenable to the proposal,21 the same did not materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount of the check,22 froze their peso and dollar deposits in the amounts of P275,166.80 and $893.46,23 and filed a complaint24 against them for Sum of Money with Branch 50 of the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 94-71022. In said complaint, PNB demanded payment of around P8,202,220.44, plus interests25 and attorneys fees, from the spouses Cheah. As their main defense, the spouses Cheah claimed that the proximate cause of PNBs injury was its own negligence of paying a US dollar denominated check without waiting for the 15-day clearing period, in violation of its bank practice as mandated by its own bank circular, i.e., PNB General Circular No. 52101/88.26 Because of this, spouses Cheah averred that PNB is barred from claiming what it had lost. They further averred that it is unjust for them to pay back the amount disbursed as they never really benefited therefrom. As counterclaim, they prayed for the return of their frozen deposits, the recoupment of P400,000.00 representing the amount they had so far spent in recovering the value of the check, and payment of moral and exemplary damages, as well as attorneys fees. Ruling of the Regional Trial Court The RTC ruled in PNBs favor. The dispositive portion of its Decision27 dated May 20, 1999 reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs bank the amount: 1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate prevailing at the time the proceeds of the BA Check No. 190 were withdrawn or the prevailing Central Bank Rate at the time the amount is to be reimbursed by the defendants to plaintiff or whatever is lower. This is without prejudice however, to the rights of the defendants (accommodating parties) to go against the group of Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries- accommodated parties) who are privy to the defendants. No pronouncement as to costs. No other award of damages for non[e] has been proven. SO ORDERED.28 The RTC held that spouses Cheah were guilty of contributory negligence. Because Ofelia trusted a friends friend whom she did not know and considering the amount of the check made payable to cash, the RTC opined that Ofelia showed lack of vigilance in her dealings. She should have exercised due care by investigating the negotiability of the check and the identity of the drawer. While the court found that the proximate cause of the wrongful payment of the check was PNBs negligence in not observing the 15-day guarantee period rule, it ruled that spouses Cheah still cannot escape liability to reimburse PNB the value of the check as an accommodation party pursuant to Section 29 of the Negotiable Instruments Law.29 It likewise applied the principle of solutio indebiti under the Civil Code. With regard to the award of other forms of damages, the RTC held that each party must suffer the consequences of their own acts and thus left both parties as they are. Unwilling to accept the judgment, the spouses Cheah appealed to the CA.

Ruling of the Court of Appeals While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer the consequences of Ofelias lack of care and prudence in immediately trusting a stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005 Decision,30 viz: As both parties were equally negligent, it is but right and just that both parties should equally suffer and shoulder the loss. The scam would not have been possible without the negligence of both parties. As earlier stated, the complaint of PNB cannot be dismissed because the Cheah spouses were negligent and Ms. Cheah took an active part in the deposit of the check and the withdrawal of the subject amounts. On the other hand, the Cheah spouses cannot entirely bear the loss because PNB allowed her to withdraw without waiting for the clearance of the check. The remedy of the parties is to go after those who perpetrated, and benefited from, the scam. WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered DECLARING both parties equally negligent and should suffer and shoulder the loss. Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah spouses the amount due to them. SO ORDERED.31 In so ruling, the CA ratiocinated that PNB Buendia Branchs non-receipt of the SWIFT message from Philadelphia National Bank within the 15-day clearing period is not an acceptable excuse. Applying the last clear chance doctrine, the CA held that PNB had the last clear opportunity to avoid the impending loss of the money and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds without exhausting the 15-day clearing period which has always been a standard banking practice as testified to by PNBs own officers, and as provided in its own General Circular No. 52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the latter are accommodation parties under the law as the banks own negligence is the proximate cause of the damage it sustained. Nevertheless, it also found Ofelia guilty of contributory negligence. Thus, both parties should be made equally responsible for the resulting loss. Both parties filed their respective Motions for Reconsideration32 but same were denied in a Resolution33 dated December 21, 2005. Hence, these Petitions for Review on Certiorari. Our Ruling The petitions for review lack merit. Hence, we affirm the ruling of the CA. PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss.
1wphi1

"Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. x x x To determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the answer is no, then the event is the proximate cause."34 Here, while PNB highlights Ofelias fault in accommodating a strangers check and depositing it to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice. It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. As declared by Josephine Estella, the Administrative Service Officer who was the banks Remittance Examiner, what was unusual in the processing of the check was that the "lapse of 15 banking days was not observed."35 Even PNBs agreement with Philadelphia National Bank36 regarding the rules on the collection of the proceeds of US dollar checks refers to "business/ banking days." Ofelia deposited the subject check on November 4, 1992. Hence, the 15th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing period.

This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice. 37 Also, in Associated Bank v. Tan,38 wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that "[b]efore the check shall have been cleared for deposit, the collecting bank can only assume at its own risk x x x that the check would be cleared and paid out." The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch waited for the expiration of the clearing period and had never released during that time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly, PNBs disregard of its preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the injury of losing a significant amount of money. It bears stressing that "the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected."39 PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as "negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected."40 With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. "The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct."41 A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded. Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio indebiti, which is laid down in Article 2154 of the Civil Code:42 Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. "[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he who paid was not under obligation to do so; and (b) that the payment was made by reason of an essential mistake of fact.43 In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In the first place, the gross negligence of PNB, as earlier discussed, can never be equated with a mere mistake of fact, which must be something excusable and which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence. The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank "Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection."44 The CA found Ofelias credulousness blameworthy. We agree. Indeed, Ofelia failed to observe caution in giving her full trust in accommodating a complete stranger and this led her and her husband to be swindled. Considering that Filipina was not personally known to her and the amount of the foreign check to be encashed was $300,000.00, a higher degree of care is expected of Ofelia which she, however, failed to exercise under the circumstances. Another circumstance which should have goaded Ofelia to be more circumspect in her dealings was when a bank officer called her up to inform that the Bank of America check has already been cleared way earlier than the 15-day clearing period. The fact that the check was cleared after only eight banking days from the time it was deposited or contrary to what Garin told her that clearing takes 15 days should have already put Ofelia on guard. She should have first verified the regularity of such hasty clearance considering that if something goes wrong with the transaction, it is she and her husband who would be put at risk and not the accommodated party. However, Ofelia chose to ignore the same and instead actively participated in immediately withdrawing the proceeds of the check. Thus, we are one with

the CA in ruling that Ofelias prior consultation with PNB officers is not enough to totally absolve her of any liability. In the first place, she should have shunned any participation in that palpably shady transaction. In any case, the complaint against the spouses Cheah could not be dismissed. As PNBs client, Ofelia was the one who dealt with PNB and negotiated the check such that its value was credited in her and her husbands account. Being the ones in privity with PNB, the spouses Cheah are therefore the persons who should return to PNB the money released to them. All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally negligent and should therefore equally suffer the loss. The two must both bear the consequences of their mistakes. WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto. SO ORDERED.

Damages; requisites. License to operate a cockpit is a mere privilege, and even if he was able to get a business permit from the mayor, this did not give him a license to operate a cockpit. Without any legal right to operate a cockpit in the municipality, petitioner is not entitled to damages. Injury alone does not give petitioner the right to recover damages; he must also have a right of action for the legal wrong inflicted by the respondents. We need not belabor that in order that the law will give redress for an act causing damage, there must be damnum et injuria that act must be not only hurtful, but wrongful. Danilo A. Du vs. Venancio R. Jayoma, et al.; G.R. No. 175042, April 23, 2012. G.R. No. 175042 April 23, 2012 DANILO A. DU, Petitioner, vs. VENANCIO R. JAYOMA, then Municipal Mayor of Mabini, Bohol, VICENTE GULLE, JR., JOVENIANO MIANO, WILFREDO MENDEZ, AGAPITO VALLESPIN, RENE BUCIO, JESUS TUTOR, CRESCENCIO BERNALES, EDGARDO YBANEZ, and REY PAGALAN, then members of the Sangguniang Bayan (SB) of Mabini, Bohol, Respondents. DECISION DEL CASTILLO, J.: In the absence of a legal right in favor of the plaintiff, there can be no cause of action. This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the Decision2 dated July 11, 2006 and the Resolution3 dated October 4, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 00492. Factual Antecedents On July 7, 1988, the Sangguniang Bayan of the Municipality of Mabini, Bohol, enacted Municipal Ordinance No. 1, series of 1988,4 requiring the conduct of a public bidding for the operation of a cockpit in the said municipality every four years. For the period January 1, 1989 to December 31, 1992, the winning bidder was Engr. Edgardo Carabuena.5However, due to his failure to comply with the legal requirements for operating a cockpit, the Sangguniang Bayan on December 1, 1988 adopted Resolution No. 127, series of 1988, 6 authorizing petitioner Danilo Du to continue his cockpit operation until the winning bidder complies with the legal requirements.7 On July 9, 1997, upon discovering that petitioner has been operating his cockpit in violation of Municipal Ordinance No. 1, series of 1988, the Sangguniang Bayan passed Municipal Resolution No. 065, series of 1997,8suspending petitioners cockpit operation effective upon approval.9 On July 11, 1997, pursuant to Municipal Resolution No. 065, series of 1997, respondent Venancio R. Jayoma, then Mayor of Mabini, in a letter,10 ordered petitioner to desist from holding any cockfighting activity effective immediately.11 Feeling aggrieved, petitioner filed with Branch 51 of the Regional Trial Court (RTC) of Bohol, a Petition for Prohibition,12 docketed as Special Civil Action No. 4, against respondent mayor and nine members of the Sangguniang Bayan of Mabini, namely: Vicente Gulle, Jr., Joveniano Miano, Wilfredo Mendez, Agapito Vallespin, Rene Bucio, Jesus Tutor, Crescencio Bernales, Edgardo Ybanez and Rey Pagalan. Petitioner prayed that a preliminary injunction and/or a temporary restraining order be issued to prevent respondents from suspending his cockpit operation.13 Petitioner claimed that he has a business permit to operate until December 31, 1997;14 and that the Municipal Resolution No. 065, series of 1997, was unlawfully issued as it deprived him of due process.15

In their Answer,16 respondents interposed that under the Local Government Code (LGC) of 1991, the power to authorize and license the establishment, operation and maintenance of a cockpit is lodged in the Sangguniang Bayan;17 that respondent mayor, in ordering the suspension of petitioners cockpit operation, was merely exercising his executive power to regulate the establishment of cockpits in the municipality, pursuant to the ordinances and resolutions enacted by the Sangguniang Bayan; 18 and that Municipal Resolution No. 065, series of 1997, does not need to be approved by the Sangguniang Panlalawigan because it is not an ordinance but an expression of sentiments of the Sangguniang Bayan of Mabini.19 On October 22, 1997, a Temporary Restraining Order20 was issued by the RTC enjoining respondents from suspending the cockpit operation of petitioner until further orders from the court.21 The Petition for Prohibition was later amended22 to include damages, which the RTC admitted in an Order23 dated January 21, 1998. Ruling of the Regional Trial Court On October 5, 2004, the RTC rendered a Decision24 in favor of petitioner, to wit: WHEREFORE, and on the ground that petitioner was able to prove his case with preponderance of evidence, judgment is hereby rendered in favor of the petitioner and against the respondents, ordering the respondents jointly and severally to pay the petitioner: 1. The amount of Twenty Thousand Pesos (P20,000.00) in the concept of moral damages; 2. The amount of Sixty Thousand Pesos (P60,000.00) in the concept of unearned income considering the unrebutted testimony of the petitioner [that] he lost Four Thousand Pesos (P4,000.00) for each of the fifteen (15) Sundays that his cockpit was closed as its operation was ordered suspended by the respondent. By mathematical computation P4,000.00 x 15 amounts to P60,000.00; 3. The amount of Ten Thousand Pesos (P10,000.00) as exemplary damages to deter other public officials from committing similar acts; 4. The amount of Twenty Thousand Pesos (P20,000.00) as attorneys fees, and to pay the cost. SO ORDERED.25 Ruling of the Court of Appeals On appeal, the CA reversed the Decision of the RTC. According to the CA, petitioner did not acquire a vested right to operate a cockpit in the municipality as he was only granted a temporary privilege by the Sangguniang Bayan.26 Hence, there being no right in esse, petitioner is not entitled to damages. 27 Thus, the dispositive portion reads: WHEREFORE, premises considered, the instant appeal is hereby DENIED. The assailed decision granting petitioner the award of damages is SET ASIDE and the petition filed by petitioner against respondents is DISMISSED. SO ORDERED.28 Petitioner moved for reconsideration which was denied by the CA in a Resolution29 dated October 4, 2006. Issue Hence, the instant petition raising the core issue of whether the CA erred in finding that petitioner is not entitled to damages.30 Petitioners Arguments Petitioner contends that Municipal Resolution No. 065, series of 1997, is ultra vires as it was maliciously, hastily, and unlawfully enforced by respondent mayor two days after its passage without the review or approval of the Sangguniang Panlalawigan of Bohol.31 He alleges that respondents suspended the operation of his cockpit without due process and that the suspension was politically motivated.32 In addition, he claims that as a result of the incident, he is entitled to actual, moral and exemplary damages as well as attorneys fees.33

Respondents Arguments Echoing the ruling of the CA, respondents insist that petitioner is not entitled to damages because he did not acquire a vested right to operate a cockpit in the municipality.34 They also maintain that the suspension of petitioners cockpit operation was pursuant to law and prevailing ordinance.35 Our Ruling The petition lacks merit. A cause of action is defined as "the act or omission by which a party violates a right of another."36 Corollarily, the essential elements of a cause of action are: (1) a right in favor of the plaintiff; (2) an obligation on the part of the defendant to respect such right; and (3) an act or omission on the part of the defendant in violation of the plaintiffs right with a resulting injury or damage to the plaintiff for which the latter may file an action for the recovery of damages or other appropriate relief. 37 Petitioner has no legal right to operate a cockpit. In this case, we find that petitioner has no cause of action against the respondents as he has no legal right to operate a cockpit in the municipality. Under Resolution No. 127, series of 1988, the Sangguniang Bayan allowed him to continue to operate his cockpit only because the winning bidder for the period January 1, 1989 to December 31, 1992 failed to comply with the legal requirements for operating a cockpit. Clearly, under the said resolution, petitioners authority to operate the cockpit would end on December 31, 1992 or upon compliance by the winning bidder with the legal requirements for operating a cockpit, whichever comes first. As we see it, the only reason he was able to continue operating until July 1997 was because the Sangguniang Bayan of Mabini failed to monitor the status of the cockpit in their municipality. And even if he was able to get a business permit from respondent mayor for the period January 1, 1997 to December 31, 1997, this did not give him a license to operate a cockpit. Under Section 447(a)(3)(v) of the LGC, it is the Sangguniang Bayan which is empowered to "authorize and license the establishment, operation and maintenance of cockpits, and regulate cockfighting and commercial breeding of gamecocks." Considering that no public bidding was conducted for the operation of a cockpit from January 1, 1993 to December 31, 1997, petitioner cannot claim that he was duly authorized by the Sangguniang Bayan to operate his cockpit in the municipality for the period January 1, 1997 to December 31, 1997. Respondent members of the Sangguniang Bayan, therefore, had every reason to suspend the operation of petitioners cockpit by enacting Municipal Resolution No. 065, series of 1997. As the chief executive of the municipal government, respondent mayor was duty-bound to enforce the suspension of the operation of petitioners cockpit pursuant to the said Resolution. It bears stressing that no evidence was presented to show that upon review by the Sangguniang Panlalawigan of Bohol, the resolution was declared invalid or that the resolution was issued beyond the powers of the Sangguniang Bayan or mayor. Jurisprudence consistently holds that an ordinance, or in this case a resolution, is "presumed valid in the absence of evidence showing that it is not in accordance with the law."38 Hence, we find no reason to invalidate Municipal Resolution No. 065, series of 1997. License to operate a cockpit is a mere privilege. In addition, it is well enshrined in our jurisprudence that "a license authorizing the operation and exploitation of a cockpit is not property of which the holder may not be deprived without due process of law, but a mere privilege that may be revoked when public interests so require."39 Having said that, petitioners allegation that he was deprived of due process has no leg to stand on. Petitioner not entitled to damages Without any legal right to operate a cockpit in the municipality, petitioner is not entitled to damages. Injury alone does not give petitioner the right to recover damages; he must also have a right of action for the legal wrong inflicted by the respondents.40 We need not belabor that "in order that the law will give redress for an act causing damage, there must be damnum et injuria that act must be not only hurtful, but wrongful."41
1wphi1

All told, we find no error on the part of the CA in dismissing petitioners case. WHEREFORE, the petition is hereby DENIED. The assailed Decision dated July 11, 2006 and the Resolution dated October 4, 2006 of the Court of Appeals in CA-G.R. SP No. 00492 are hereby AFFIRMED. SO ORDERED.

OCOBER CASES

Contracts; extension; performance security; public bidding. The extension of the option period means that the Comelec had more time to determine the propriety of exercising the option. With the extension, the Comelec could acquire the subject PCOS machines under the same terms and conditions as earlier agreed upon. The end result is that the Comelec acquired the subject PCOS machines with its meager budget and was able to utilize the rentals paid for the 2010 elections as part of the purchase price. It must be pointed out that public biddings are held for the best protection of the public and to give the public the best possible advantages by means of open competition between the bidders. What are prohibited are modifications or amendments which give the winning bidder an edge or advantage over the other bidders who took part in the bidding, or which make the signed contract unfavorable to the government. In this case, the extension of the option period and the eventual purchase of the subject goods resulted in more benefits and advantages to the government and to the public in general. The advantage to the government, time and budget constraints, the application of the rules on valid amendment of government contracts, and the successful conduct of the May 2010 elections are among the factors looked into in arriving at the conclusion that the assailed Resolutions issued by the Comelec and the agreement and deed entered into between the Comelec and SmartmaticTIM, are valid. Archbishop Fernando R. Capalla, et al. vs. The Hon. Commission on Elections/Solidarity for Sovereignty etc. G.R. No. 201112/G.R. No. 201121/G.R. No. 201127/G.R. No. 201413. October 23, 2012

G.R. No. 201112 October 23, 2012 ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO SUSANO, Petitioners, vs. THE HONORABLE COMMISSION ON ELECTIONS, Respondent. x-----------------------x G.R. No. 201121

ALI

and

MARY

ANNE

L.

SOLIDARITY FOR SOVEREIGNITY (S4S) represented by Ma. Linda Olaguer; RAMON PEDROSA, BENJAMIN PAULINO SR., EVELYN CORONEL, MA. LINDA OLAGUER MONTAYRE, and NELSON T. MONTAYRE,Petitioners, vs. COMMISSION ON ELECTIONS represented by its Chairman, Commissioner SIXTO S. BRILLANTES, JR.,Respondent. x-----------------------x G.R. No. 201127

TEOFISTO T. GUINGONA, BISHOP BRODERICK S. PABILLO, SOLITA COLLAS MONSOD, MARIA CORAZON MENDOZA ACOL, FR. JOSE DIZON, NELSON JAVA CELIS, PABLO R. MANALASTAS, GEORGINA R. ENCANTO and ANNA LEAH E. COLINA, Petitioners, vs. COMMISSION ON ELECTIONS and SMARTMATIC TIM CORPORATION, Respondents. x-----------------------x G.R. No. 201413 TANGGULANG DEMOKRASYA (TAN DEM), INC., EVELYN L. KILA YKO, TERESITA D. BALTAZAR, PILAR L. CALDERON and ELITA T. MONTILLA, Petitioners, vs. COMMISSION ON ELECTIONS and SMARTMATIC-TIM CORPORATION, Respondents. RESOLUTION PERALTA, J.: Before the Court are the Motions for Reconsideration separately filed by movants Teofisto T. Guingona, Bishop Broderick S. Pabillo, Solita Collas Monsod, Maria Corazon Mendoza Acol, Fr. Jose Dizon, Nelson Java Celis, Pablo R. Manalastas, Georgina R. Encanto and Anna Leah E. Colina (herein referred to as Guingona, et al.) in G.R. No. 201127;1 Solidarity for Sovereignty (S4S) represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin Paulino Sr., Evelyn Coronel, Ma. Linda Olaguer Montayre, and Nelson T. Montayre (referred to as S4S, et al.) in G.R. No. 201121; 2 and Tanggulang Demokrasya (Tan Dem), Inc., Evelyn L. Kilayko, Teresita D. Baltazar, Pilar L. Calderon and Elita T. Montilla (Tan Dem, et al. for brevity) in G.R. No. 201413. 3 Movants implore the Court to take a second look at the June 13, 2012 Decision 4 dismissing their petitions filed against respondents Commission on Elections (Comelec), represented by its Chairman Commissioner Sixto S. Brillantes, Jr. (Chairman Brillantes), and Smartmatic-TIM Corporation (Smartmatic-TIM). For a proper perspective, the facts as found by the Court in the assailed decision are briefly stated below: On July 10, 2009, the Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated Election System for the May 10, 2010 Synchronized National and Local Elections (AES Contract) which is a Contract of Lease with Option to Purchase (OTP) the goods listed therein consisting of the Precinct Count Optical Scan (PCOS), both software and hardware. 5 The Comelec was given until December 31, 2010 within which to exercise the option but opted not to exercise the same except for 920 units of PCOS machines with the corresponding canvassing/consolidation system (CCS) for the special elections in certain areas in Basilan, Lanao del Sur and Bulacan.6 On March 6, 2012, the Comelec issued Resolution No. 9373 resolving to seriously consider exercising the OTP subject to certain conditions.7 It issued another Resolution numbered 9376 resolving to exercise the OTP in accordance with the AES Contract.8 On March 29, 2012, it issued Resolution No. 9377 resolving to accept Smartmatic-TIMs offer to extend the period to exercise the OTP until March 31, 2012.9 The Agreement on the Extension of the OTP under the AES Contract (Extension Agreement) was eventually signed on March 30, 2012.10 Finally, it issued Resolution No. 9378 resolving to approve the Deed of Sale between the Comelec and Smartmatic-TIM to purchase the latters PCOS machines to be used in the upcoming 2013 elections. 11 The Deed of Sale was forthwith executed.12 Claiming that the foregoing Comelec issuances and transactions entered pursuant thereto are illegal and unconstitutional, movants filed separate petitions for certiorari, prohibition and mandamus before the Court. Movants failed to obtain a favorable decision when the Court rendered a Decision 13 on June 13, 2012 dismissing their petitions. Hence, the motions for reconsideration based on the following grounds: G.R. No. 201127 I. THE HONORABLE COURT, WITH ALL DUE RESPECT, ERRED IN HOLDING THAT THE PERIOD OF THE OPTION TO PURCHASE HAS NOT EXPIRED;

II. THE HONORABLE COURT, WITH ALL DUE RESPECT, ERRED IN HOLDING THAT THERE WAS NO SUBSTANTIAL AMENDMENT TO THE AES CONTRACT; AND II. THE HONORABLE COURT, WITH ALL DUE RESPECT, ERRED IN HOLDING THAT THE SUBJECT AMENDMENT IS ADVANTAGEOUS TO THE PUBLIC.14 Movants Guingona, et al. disagree with the Courts interpretation of Article 2.2 of the AES Contract and insist that the use of the words "without prejudice" and "surviving" explicitly distinguished the "period of the option to purchase" from the "Term of this Contract." They thus conclude that the warranty provision and the OTP are covered by a totally different period and not by the term of the AES Contract. 15 They also argue that the bid bulletins relative to the AES Contract expressly stated the deadline for Comelec to exercise the OTP16 and that the parties intended that the stated period be definite and nonextendible.17 Movants likewise aver that the Court erred in holding that there was no substantial amendment to the AES Contract.18 Citing San Diego v. The Municipality of Naujan, Province of Mindoro,19 as discussed in Justice Arturo D. Brions Dissenting Opinion,20 and as allegedly reiterated in San Buenaventura v. Municipality of San Jose, Camarines Sur, et al.,21 Guingona et al. points out that an extension, however short, of the period of a publicly bidded out contract is a substantial amendment that requires public bidding because the period in an OTP is a vital and essential particular to the contract.22 Movants add that the Court erred in holding that the subject amendment is advantageous to the public as the extended option contract is void and thus can never be said to inure to the benefit of the public.23 Lastly, movants claim that the Comelec still has the time to conduct public bidding to procure the items necessary for the 2013 elections and that the needed budget could be provided by Congress.24 G.R. No. 201121 Petitioners humbly submit that the Order of this Honorable Court dismissing the petition by upholding the validity of the extended option to purchase and the constitutionality of the AES Contract implementation is contrary to law and the Constitution.25 Movants S4S, et al. implore the Court to take a second look at the relevance of the release of the performance security to the subject expired option contract since it did not alter the fact of such expiration.26 They explain that the Courts conclusion is a dangerous precedent, because it would encourage circumvention of the laws and rules on government contracts since the parties could enter into collusion to defer the release of the performance security for the sole purpose of prolonging the effectivity of the contract.27 They reiterate their argument that any extension of the option period amounts to a new procurement which must comply with the requirements of bidding under Republic Act (RA) No. 9184 28 and stress that the March 31, 2012 Deed of Sale is not a special transaction which warrants any exemption from the mandatory requirements of a public bidding.29 It is likewise their view that time constraints, budgetary consideration and other advantages in extending the option period are not plausible justifications for non-compliance with the requirements of public bidding.30 Finally, movants assail the constitutionality of the entire AES Contract and consequently of the option contract because of its failure to provide that the mandatory minimum system capabilities be complied with; and because of the provision on shared responsibility between the Comelec and Smartmatic.31 G.R. No. 201413 I. THE NON-RELEASE OF THE SECURITY DEPOSIT BY COMELEC INDICATES THE EXISTENCE OF UNFULFILLED OBLIGATIONS BY THE CONTRACTOR, AND THEREFORE, IT IS ABSURD TO CITE THIS UNCURED BREACH BY THE CONTRACTOR TO JUSTIFY THE GRANT OF MORE RIGHTS TO THE SAID CONTRACTOR BY EXTENDING THE EXPIRED OPTION TO PURCHASE WHICH EFFECTIVELY CIRCUMVENTS THE GOVERNMENT PROCUREMENT LAW. II. THERE IS NO JUSTIFIABLE BASIS TO ACCEPT MERE ARGUMENTS THAT THE PCOS IS CAPABLE OF RUNNING WITH DIGITAL SIGNATURES, SECURE[D] FROM HACKING AND COMPLIANT WITH THE MINIMUM ACCURACY RATE OF 99.995%, WHEN IN ACTUAL PERFORMANCE DURING MAY 2010 [ELECTIONS,] THE PCOS OPERATED WITHOUT DIGITAL SIGNATURES, FOUND VULNERABLE TO HACKING AND FAILED BY THE ACCURACY REQUIREMENT, AS SHOWN BY THE APPLICABLE COMELEC RESOLUTIONS, TWG-RMA REPORT, AUDIT LOGS AND PRINT LOGS.32

Movants Tan Dem, et al. convey their view on the absurdity of the Courts decision in justifying the resurrection of the dead OTP with the continuing effectivity of the stipulation on performance security notwithstanding the presumed existence of uncured contractual breach by the contractor. 33 They also express doubt that the PCOS machines are capable of running with digital signatures compliant with the minimum accuracy rate.34 For their part, respondents offer the following comments: COMELEC The Comelec, on the other hand, argues that it validly exercised the OTP because the period for its exercise was amended and accordingly extended to March 31, 2012. It highlights the provision in the AES Contract on the right to amend the contract which the parties did during its effectivity. 35 It does not agree with movants claim that the parties to the contract intended that the option period be definite.36 Rather, it maintains that the parties are free to extend the option period in the same way that they can amend the other provisions of the contract.37 Moreover, the Comelec insists that the extension of the option period is neither a material nor substantial amendment considering that after the extension, the AES Contract taken as a whole still contains substantially the same terms and conditions as the original contract and does not translate to concrete financial advantages to Smartmatic-TIM.38 It also argues that the extension of the option period could not have affected the bid prices or financial proposals of the bidders since they understood from the RFP that it had no separate price allocation.39 It emphasizes that a longer period was not a benefit but a burden to the bidders such that they would not have submitted a lower but in fact a higher bid because they would have to give up the opportunity to lease or sell the PCOS machines to third parties and it would also result in higher costs in warehousing and security. 40 The Comelec also opines that San Diego and San Buenaventura, cited by movants, are not applicable because they involve alterations of the essential terms and conditions of the main contract to the disadvantage of the government unlike this case where there is an alteration only with respect to the ancillary provision of the AES Contract and for the benefit of the Comelec.41 The Comelec reiterates that the extension of the option period is advantageous to it and burdensome for Smartmatic-TIM.42 Lastly, it posits that the exercise of the OTP was the more prudent choice for the Comelec taking into consideration the budget and time constraints.43 SMARTMATIC-TIM Smartmatic-TIM contends that the OTP is only an ancillary provision in the subsisting AES Contract which has already satisfied the public bidding requirements.44 It disagrees with petitioners that the extension of the option period was unilateral and claims instead that it was mutual as the parties in fact executed an agreement on the extension.45 Assuming that the option period had already expired, the extension is not a substantial or material amendment since it only pertains to a residual component of the AES Contract.46 It also echoes the Comelecs argument that the San Diego and San Buenaventura cases are not applicable to the present case because of the difference in factual circumstances.47 Moreover, it reiterates its claim that the extension is favorable to the Comelec and does not prejudice the other bidders. 48 Smartmatic-TIM explains that the retention of the performance security is due to its residual continuing obligations to maintain the PCOS machines and update the software in anticipation of their possible use for elections after 2010, and not due to the existence of unfulfilled obligations as provided in the AES Contract.49 It likewise points out that the alleged flaws and deficiencies of the PCOS machines do not affect its compliance with the requirements of RA 9369.50 It emphasizes that the use of digital signatures and their availability for use in future elections have been adequately established. 51 It also defends PCOS machines compliance with the minimum requirements under RA 9369 as found by the Court in Roque v. Comelec.52 As to the alleged glitches, Smartmatic-TIM claims that they are not attributable to any inherent defect in the PCOS machines and, in any case, enhancements have already been made. 53 Lastly, Smartmatic-TIM stresses that the arguments challenging the validity and constitutionality of the AES Contract and the performance by the Comelec of its mandate have already been rejected with finality by the Court in Roque v. Comelec.54 We find no reason to disturb our June 13, 2012 Decision. Clearly, under the AES Contract, the Comelec was given until December 31, 2010 within which to exercise the OTP the subject goods listed therein including the PCOS machines. The option was, however, not

exercised within said period. But the parties later entered into an extension agreement giving the Comelec until March 31, 2012 within which to exercise it. With the extension of the period, the Comelec validly exercised the option and eventually entered into a contract of sale of the subject goods. The extension of the option period, the subsequent exercise thereof, and the eventual execution of the Deed of Sale became the subjects of the petitions challenging their validity in light of the contractual stipulations of respondents and the provisions of RA 9184. In our June 13, 2012 Decision, we decided in favor of respondents and placed a stamp of validity on the assailed resolutions and transactions entered into. Based on the AES Contract, we sustained the parties right to amend the same by extending the option period. Considering that the performance security had not been released to Smartmatic-TIM, the contract was still effective which can still be amended by the mutual agreement of the parties, such amendment being reduced in writing. To be sure, the option contract is embodied in the AES Contract whereby the Comelec was given the right to decide whether or not to buy the subject goods listed therein under the terms and conditions also agreed upon by the parties. As we simply held in the assailed decision: While the contract indeed specifically required the Comelec to notify Smartmatic-TIM of its OTP the subject goods until December 31, 2010, a reading of the other provisions of the AES contract would show that the parties are given the right to amend the contract which may include the period within which to exercise the option. There is, likewise, no prohibition on the extension of the period, provided that the contract is still effective.55 In interpreting Article 2.2 of the AES Contract, movants claim that the use of the word "surviving" and the phrase "without prejudice" suggests that the warranty provision and the OTP are covered by a different period and not by the term of the AES Contract.56 We cannot subscribe to said postulation. Article 2.2 of the AES Contract reads: Article 2 EFFECTIVITY xxxx 2.2. The Term of this Contract begins from the date of effectivity until the release of the Performance Security, without prejudice to the surviving provisions of this Contract including the warranty provision as prescribed in Article 8.3 and the period of the option to purchase (Emphasis supplied). The provision means that the contract takes effect from the date of effectivity until the release of the performance security. Article 8 thereof, on the other hand, states when the performance security is released, to wit: Article 8 Performance Security and Warranty xxxx Within seven (7) days from delivery by the PROVIDER to COMELEC of the Over-all Project Management Report after successful conduct of the May 10, 2010 elections, COMELEC shall release to the PROVIDER the above-mentioned Performance Security without need of demand. The performance security may, therefore, be released before December 31, 2010, the deadline set in the AES Contract within which the Comelec could exercise the option. The moment the performance security is released, the contract would have ceased to exist. However, since it is without prejudice to the surviving provisions of the contract, the warranty provision and the period of the option to purchase survive even after the release of the performance security. While these surviving provisions may have different terms, in no way can we then consider the provision on the OTP separate from the main contract of lease such that it cannot be amended under Article 19. In this case, the contract is still effective because the performance security has not been released. Thus, not only the option and warranty provisions survive but the entire contract as well. In light of the contractual provisions, we, therefore, sustain the amendment of the option period.

The amendment of a previously bidded contract is not per se invalid. For it to be nullified, the amendment must be substantial such that the other bidders were deprived of the terms and opportunities granted to the winning bidder after it won the same and that it is prejudicial to public interest. In our assailed decision, we found the amendment not substantial because no additional right was made available to Smartmatic-TIM that was not previously available to the other bidders; except for the extension of the option period, the exercise of the option was still subject to same terms and conditions such as the purchase price and the warranty provisions; and the amendment is more advantageous to the Comelec and the public. Movants seek the application of San Diego57 where we nullified the extension of the lease agreement and considered said amendment substantial. We, however, find the case inapplicable. The extension made in San Diego pertained to the period of the main contract of lease while in this case, the extension referred not to the main contract of lease of goods and services but to the period within which to exercise the OTP. In extending the original period of lease of five years to another five years without public bidding, the Municipality of Naujan, Province of Mindoro acted in violation of existing law. The period of lease undoubtedly was a vital and essential particular to the contract of lease. In San Diego, the Municipality of Naujan was the lessor of its municipal waters and the petitioner, the lessee. An extension of the lease contract would mean that the lessee would be given undue advantage because it would enjoy the lease of the property under the same terms and conditions for a longer period. Moreover, prior to the extension of the lease period, the rentals were reduced upon the request of the lessee. The end result was that the municipality was deprived of income by way of rentals because of the reduced rates and longer period of lease. In this case, the extension of the option period means that the Comelec had more time to determine the propriety of exercising the option. With the extension, the Comelec could acquire the subject PCOS machines under the same terms and conditions as earlier agreed upon. The end result is that the Comelec acquired the subject PCOS machines with its meager budget and was able to utilize the rentals paid for the 2010 elections as part of the purchase price.
1wphi1

We maintain the view that the extension of the option period is an amendment to the AES Contract authorized by Article 19 thereof. As held in Agan, Jr. v. Philippine International Air Terminals Co., Inc.:58 While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon, such changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or financial proposals previously submitted by other bidders. The alterations and modifications in the contract executed between the government and the winning bidder must be such as to render such executed contract to be an entirely different contract from the one that was bidded upon.59 It must be pointed out that public biddings are held for the best protection of the public and to give the public the best possible advantages by means of open competition between the bidders, and to change them without complying with the bidding requirement would be against public policy. 60 What are prohibited are modifications or amendments which give the winning bidder an edge or advantage over the other bidders who took part in the bidding, or which make the signed contract unfavorable to the government.61 In this case, as thoroughly discussed in our June 13, 2012 Decision, the extension of the option period and the eventual purchase of the subject goods resulted in more benefits and advantages to the government and to the public in general. While movants may have apprehensions on the effect to government contracts of allowing "advantage to the government" as justification for the absence of competitive public bidding, it must be stressed that the same reasoning could only be used under similar circumstances. The "advantage to the government," time and budget constraints, the application of the rules on valid amendment of government contracts, and the successful conduct of the May 2010 elections are among the factors looked into in arriving at the conclusion that the assailed Resolutions issued by the Comelec and the agreement and deed entered into between the Comelec and Smartmatic-TIM, are valid.

Lastly, we need not further discuss the issues raised by movants on the alleged glitches of the subject PCOS machines, their compliance with the minimum system capabilities required by law, and the supposed abdication of the Comelecs exclusive power in the conduct of elections as these issues have been either thoroughly discussed in the assailed decision or in the earlier case of Roque, Jr. v. Commission on Elections.62 WHEREFORE, premises considered, the motions for reconsideration are DENIED for lack of merit. SO ORDERED. DIOSDADO M. PERALTA Associate Justice

Contracts; freedom to stipulate. Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the terms of their contract provided that they are not contrary to law, morals, good customs, public order, or public policy. Here, both parties knew for a fact that the property subject of their contract was occupied by informal settlers, whose eviction would entail court actions that in turn, would require some amount of time. They also knew that the length of time that would take to conclude such court actions was not within their power to determine. Despite such knowledge, both parties still agreed to the stipulation that the payment of the balance of the purchase price will be deferred until the informal settlers are ejected. Thus, PLU cannot be allowed to renege on its agreement. The parties intended the performance of the obligation until the squatters are duly evicted. P.L. Uy Realty Corporation vs. ALS Management and Development Corporation and Antonio K. Litonjua G.R. No. 166642. October 24, 2012

G.R. No. 166462 October 24, 2012 P.L. UY REALTY vs. ALS MANAGEMENT AND DEVELOPMENT LITONJUA, Respondents. VELASCO, J.:

CORPORATION, Petitioner, CORPORATION and ANTONIO S.

RESOLUTION For consideration of the Court is a Petition for Review on Certiorari dated February 2005 filed under Rule 45 by petitioner P. L. Uy Realty Corporation (PLU). In the petition, PLU seeks the reversal of the Decision dated August 21, 20021 and Resolution dated December 22, 20042 issued by the Court of Appeals (CA) in CA-G.R. CV No. 41377 entitled P. L. Uy Realty Corporation v. ASL 3 Management and Development Corporation, et al. The CA Decision affirmed the Decision dated November 17, 19934 of the Regional Trial Court of Pasig City, Branch 156, in Civil Case No. (unread text) which dismissed, on the ground of prematurity, the complaint filed by PLU for foreclosure of mortgage against ALS Management and Development Corporation (ALS) and Antonio S. Litonjua.5 The antecedent facts of the case are as follows: On September 3, 1980, PLU, as vendor, and ALS, as vendee, executed a Deed of Absolute Sale with Mortgage6covering a parcel of land, registered under Transfer Certificate of Title (TCT) No. 16721, in the name of petitioner and located at F. Blumentritt Street, Mandaluyong, Metro Manila. The purchase price for the land was set at PhP 8,166,705 payable, as follows: a. Upon execution of the Contract - P 500,000.00 b. Within 100 days thereafter, a downpayment equivalent to 24% (P1,960,000.00) of the principal amount less the advance of P500,000.00 - 1,460,009.20 c. The balance of P6,206,695.80 together with interest of 12% per annum (estimated interest included) on the diminishing balance shall be payable over a period of four (4) years on or before the month and day of the first downpayment as follows: 2nd Payment (24%) P1,960,009.20

Interest 744,803.49 2,704,812.69 3rd Payment (24%) 1,960,009.20 Interest 509,602.39 2,469,611.59 4th Payment (24%) 1,960,009.20 Interest 274,401.28 2,234,410.48 5th Payment (24%) 326,668.20 Interest 19,600.09 346,268.297 Notably, the parties stipulated in paragraph 4.a of the Deed of Absolute Sale with Mortgage on the eviction of informal settlers, as follows: 4. a. It is understood that the VENDOR shall have the property clear of any existing occupants/squatters, the removal of which shall be for the sole expenses & responsibilities of the VENDOR & that the VENDEE is authorized to withhold payment of the 1st 24% installment unless the above-undertaking is done and completed to the satisfaction of the VENDEE;8 Section 6 of the deed, on the other hand, provided that "realty taxes during the validity of this mortgage, shall be for the account of the VENDEE ALS."9 Thereafter, the parties entered into an Agreement dated December 23, 1980,10 paragraph 3 of which reads: 3. That all accruals of interest as provided for in paragraph 2-c of the Deed of Sale With Mortgage will be deferred and the subsequent payments of installments will correspondingly [sic] extended to the date the occupants/squatters will vacate the subject property.11 The succeeding paragraph 4 provided that in the event the informal settlers do not leave the property, PLU would reimburse ALS the following amounts: 4. That in the event the occupants/squatters will refuse to vacate the premises despite the amicable payments being offered by the FIRST PARTY (PLU) and paid by the SECOND PARTY (ALS) for the account of the FIRST PARTY, the following amount [sic] will be refunded by the FIRST PARTY to the SECOND PARTY: a. All payments made, including the downpayment b. All costs of temporary/permanent improvements introduced by the SECOND PARTY in the subject property c. All damages suffered by the SECOND PARTY due to the refusal of the occupants/squatters to vacate the premises.12 On January 26, 1981, TCT No. 16721 was canceled and a new one, TCT No. 26048, issued in the name of ALS.13 Subsequently, the parties executed a Partial Release of Mortgage dated April 3, 198114 attesting to the payment by ALS of the first installment indicated in the underlying deed. The relevant portion of the Partial Release of Mortgage reads: 1. Upon the execution of this document, the SECOND PARTY shall pay the net sum of THREE HUNDRED NINETY FIVE THOUSAND PESOS (P395,000.00) after deducting expenses, covered by UCPB Check No. 078993 dated April 2, 1981 to complete the full payment of the first 24% installment.

2. The FIRST PARTY hereby executes a partial release of the mortgage to the extent of TWENTY THOUSAND SQUARE METERS (20,000 sq.m.) in consideration of the advance payment which would now amount to a total of P1,960,009.20, of a portion of the said property indicated in the attached subdivision plan herewith x x x.15 ALS, however, failed to pay the 2nd payment despite demands. Thus, on August 25, 1982, PLU filed a Complaint 16 against ALS for Foreclosure of Mortgage and Annulment of Documents. The case was initially raffled to the Court of First Instance (CFI) of Rizal, but eventually re-raffled to the Regional Trial Court, Branch 137 in Makati City (Makati RTC) thereat docketed as Civil Case No. 47438 entitled PLU Realty Corporation v. ALS (or ASL) Management and Development Corporation.17 In the complaint, PLU alleged having had entered into an oral agreement with ALS whereby the latter "agreed to take over the task of ejecting the squatters/occupants from the property covered by TCT No. 26048 issued in its name,"18 adding that, through the efforts of ALS, the property was already 90% clear of informal settlers.19 Notably, PLUs prayer for relief states: WHEREFORE, plaintiff respectfully prays that judgment be rendered: (1) Declaring null and void the documents attached to, and made an integral part of this complaint as Annexes "D" and "G"; (2) Sentencing the defendant to pay the plaintiff the sum of Six Million Two Hundred Six Thousand Six hundred Ninety-Five Pesos & 60/100 (P6,206,695.80), with interest thereon as provided in subparagraph (c), paragraph 2 of the Deed of Sale with Mortgage and paragraph 6 of the same Deed, plus interests at the legal rate from the date of filing of this complaint; (3) Sentencing the defendant to pay the plaintiff the actual damages and attorneys fees it has suffered, as above alleged, in the total sum of Four Hundred Fifty Thousand Pesos (P450,000.00); (4) Providing that, in the event defendant refuses or fails to pay all the above-mentioned amounts after the decision of this Hon. Court has become final and executory, the corresponding order is issued for the sale, in the corresponding Foreclosure sale of the mortgaged property described in the Deed of Sale with Mortgage, to satisfy the judgment rendered by this Hon. Court, plus costs of suit. Plaintiff prays for such further reliefs as this Hon. Court may deem just and proper in the premises.20 On May 9, 1986, the Makati RTC rendered a Decision21 ruling that the obligation of PLU to clear the property of informal settlers was superseded by an oral agreement between the parties whereby ALS assumed the responsibility of ejecting said informal settlers. The Makati RTC, however, declared that the removal of the informal settlers on the property is still a subsisting and valid condition.22 In this regard, the trial court, citing a CA case entitled Jacinto v. Chua Leng (45 O.G. 2915), ruled: In the case at bar, the fulfillment of the conditional obligation to pay the subsequent installments does not depend upon the sole will or exclusive will of the defendant-buyer. In the first place, although the defendant-buyer has shown an apparent lack of interest in compelling the squatters to vacate the premises, as it agreed to do, there is nothing either in the contract or in law that would bar the plaintiff-seller from taking the necessary action to eject the squatters and thus compel the defendant-buyer to pay the balance of the purchase price. In the second place, should the squatters vacate the premises, for reasons of convenience or otherwise, and despite defendants lack of diligence, the latters obligation to pay the balance of the purchase price would arise unavoidably and inevitably. x x x Moreover, considering that the squatters right of possession to the premises is involved in Civil Case No. 40078 of this Court, defendants obligation to pay the balance of the purchase price would necessarily be dependent upon a final judgment of the Court ordering the squatters to vacate the premises. The trial court further ruled that because informal settlers still occupied 28% of the property, the condition, as to their eviction, had not yet been complied with.23 For this reason, the Makati RTC found the obligation of ALS to pay the balance of the purchase price has not yet fallen due and demandable; thus, it dismissed the case for being premature. The dispositive portion of the Makati RTC Decision reads:

WHEREFORE, judgment is hereby rendered dismissing the instant action for foreclosure of mortgage, as the same is premature. Likewise the counterclaim is hereby ordered dismissed, for lack of sufficient merit. No pronouncement as to costs. SO ORDERED.24 Therefrom, both parties appealed to the CA which eventually affirmed the ruling of the trial court in a Decision dated August 30, 198925 in CA-G.R. CV No. 12663 entitled PLU Realty Corporation v. ALS (or ASL) Management and Development Corporation. The dispositive portion of the Decision states: WHEREFORE, premises considered, the decision of the trial court is AFFIRMED in toto. No costs. SO ORDERED.26 ALS appealed the case to this Court primarily questioning the finding of the Makati RTC that it had assumed the responsibility of ejecting the informal settlers on the property. On February 7, 1990, in G.R. No. 91656, entitled ALS Management and Development Corporation v. Court of Appeals and PLU Realty, the Court issued a Resolution 27 affirming the rulings of the CA and the Makati RTC. The resolution became final and executory on February 7, 1990.28 Sometime thereafter, PLU again filed a Complaint dated November 12, 199029 against ALS for Judicial Foreclosure of Real Estate Mortgage under Rule 68, before the RTC, Branch 156 in Pasig City (Pasig RTC), docketed as Civil Case No. 60221 and entitled P. L. Uy Realty Corporation v. ASL Management and Development Corporation and Antonio S. Litonjua. In the complaint, PLU claimed that ALS had not yet completed the agreed 1st payment obligation despite numerous demands. The complaints prayer reads: WHEREFORE, it is most respectfully prayed that after hearing judgment be rendered directing the defendants to pay within ninety (90) days from receipt of an order the following amount: 1. The outstanding balance of the purchase price amounting to P6,206,695.80 plus 12% interest per annum from January, 1981 until full payment thereof has been made; 2. The sum equivalent to 10% of the total outstanding obligations as and for attorneys fee; 3. The sum of P100,000.00 as and for moral damages; and, 4. The sum of P50,000.00 as and for exemplary damages, plus costs; and in case of default to order the sale of the properties to satisfy the aforestated obligations pursuant to the provisions of Rule 68 of the Revised Rules of Court. Plaintiff also prays for such other just and equitable reliefs in the premises. In defense, ALS claims that the installment payments for the balance of the purchase price of the property are not yet due and demandable, as the removal of the informal settlers, a condition precedent for such payments to be demandable, is still to be completed. ALS further avers that respondent Antonio Litonjua (Litonjua) cannot be made personally liable under the Deed of Absolute Sale with Mortgage, not being a party thereto and as no ground exists for piercing the veil of corporate fiction to make Litonjua, a corporate officer of ALS, liable. By way of counterclaim, ALS alleged that because there were still informal settlers on the property, PLU should be directed to reimburse ALS the payments that it already made, the cost of improvements introduced by ALS on the property and for other damages. During the course of the trial, the court conducted an ocular inspection and found 1 hectares of the 5.4 hectare property still being occupied by informal settlers.30 In a Decision dated November 17, 1993, the Pasig RTC dismissed the case for being premature, the dispositive portion of which reads: WHEREFORE, premises considered, the present Complaint is hereby ordered DISMISSED for being premature.

On the counterclaim, the plaintiff is hereby ordered to reimburse the defendant-corporation the amount of P131,331.20 representing the real estate taxes paid by the latter with 12% interest thereon from the time of their actual payments to the Government until the same are fully reimbursed. The other counterclaims are hereby ordered DISMISSED for want of sufficient merits. SO ORDERED.31 Just like the Makati RTC in Civil Case No. 47438, the Pasig RTC found that the payment of the installments has not yet become due and demandable as the suspensive condition, the ejection of the informal settlers on the property, has not yet occurred.32 Further, even if ALS has taken up the obligation to eject the informal settlers, its inaction cannot be deemed as constructive fulfillment of the suspensive condition. The court reasoned that it is only when the debtor prevents the fulfillment of the condition that constructive fulfillment can be concluded, citing Article 1186 of the Civil Code. And inasmuch as PLU has failed to demand the removal of the informal settlers from the property, so the court noted citing Art. 1169 of the Civil Code, ALS cannot be deemed as in default vis--vis its obligation to remove the informal settlers.33 Furthermore, the trial court, citing Art. 1167 of the Civil Code, ruled that the foreclosure of the mortgage is not the proper remedy, and that PLU should have caused the ejectment of the informal settlers.34 Also, the court found no reason to render Litonjua personally liable for the transaction of ALS as there was no ground to pierce the veil of corporate fiction.35 From such Decision, PLU appealed to the CA which rendered the assailed Decision affirming that of the Pasig RTC. PLU moved for a reconsideration of the CA Decision but was denied in the assailed Resolution. Hence, the instant petition. The instant petition must be dismissed. Section 1, Rule 9 of the Rules of Court provides: Section 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim. (Emphasis supplied) Under this provision of law, the Court may motu proprio dismiss a case when any of the four (4) grounds referred to therein is present. These are: (a) lack of jurisdiction over the subject matter; (b) litis pendentia; (c) res judicata; and (d) prescription of action. Thus, in Heirs of Domingo Valientes v. Ramas,36 the Court ruled: Secondly, and more importantly, Section 1, Rule 9 of the Rules of Court provides: Section 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim. The second sentence of this provision does not only supply exceptions to the rule that defenses not pleaded either in a motion to dismiss or in the answer are deemed waived, it also allows courts to dismiss cases motu proprio on any of the enumerated grounds (1) lack of jurisdiction over the subject matter; (2) litis pendentia; (3) res judicata; and (4) prescription provided that the ground for dismissal is apparent from the pleadings or the evidence on record. Correlatively, Secs. 47(b) and (c) of Rule 39 provides for the two (2) concepts of res judicata: bar by prior judgment and conclusiveness of judgment, respectively. The provisions state: Section 47. Effect of judgments or final orders. The effect of a judgment or final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows: xxxx

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been missed in relation thereto, conclusive between the parties and their successors in interest, by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; and (c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto. The Court, in Social Security Commission v. Rizal Poultry and Livestock Association, Inc.,37 distinguished the two (2) concepts in this wise: Res judicata embraces two concepts: (1) bar by prior judgment as enunciated in Rule 39, Section 47(b) of the Rules of Civil Procedure; and (2) conclusiveness of judgment in Rule 39, Section 47(c). There is "bar by prior judgment" when, as between the first case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. In this instance, the judgment in the first case constitutes an absolute bar to the second action. But where there is identity of parties in the first and second cases, but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the concept of res judicata known as "conclusiveness of judgment." Stated differently, any right, fact or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same. Thus, if a particular point or question is in issue in the second action, and the judgment will depend on the determination of that particular point or question, a former judgment between the same parties or their privies will be final and conclusive in the second if that same point or question was in issue and adjudicated in the first suit. Identity of cause of action is not required but merely identity of issue. In the same Social Security Commission case, the Court enumerated the elements of res judicata, to wit: The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action. Should identity of parties, subject matter, and causes of action be shown in the two cases, then res judicata in its aspect as a "bar by prior judgment" would apply. If as between the two cases, only identity of parties can be shown, but not identical causes of action, then res judicata as "conclusiveness of judgment" applies. (Emphasis supplied.) All the elements of res judicata, as a "bar by prior judgment," are present in the instant case. The previous complaint for foreclosure of mortgage was dismissed by the trial court for being premature in Civil Case No. 47438. The dismissal action, when eventually elevated to this Court in G.R. No. 91656, was affirmed and the affirmatory resolution of the Court becoming final and executory on February 7, 1990. Further, the element of indentity of parties is considered existing even though Litonjua was only impleaded in Civil Case No. 60221 and not in Civil Case No. 47438. Absolute identity of parties is not required for res judicata to apply; substantial identity is sufficient. The Court articulated this principle was raised in Cruz v. Court of Appeals38 in this wise: The principle of res judicata may not be evaded by the mere expedient of including an additional party to the first and second action. Only substantial identity is necessary to warrant the application of res judicata. The addition or elimination of some parties does not alter the situation. There is substantial identity of parties when there is a community of interest between a party in the first case and a party in the second case albeit the latter was not impleaded in the first case. xxxx

x x x Such identity of interest is sufficient to make them privy-in-law, thereby satisfying the requisite of substantial identity of parties. Plainly, the two (2) cases involve the very same parties, the same property and the same cause of action arising from the violation of the terms of one and the same deed of absolute sale with mortgage. In fact, PLU prayed substantially the same relief in both complaints. There is no reason not to apply this principle to the instant controversy. Clearly, the instant complaint must be dismissed. On a final note, it would be relevant to note that Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the terms of their contract provided that they are not contrary to law, morals, good customs, public order, or public policy. Thus, when the provisions of a contract are valid, the parties are bound by such terms under the principle that a contract is the law between the parties. Here, both parties knew for a fact that the property subject of their contract was occupied by informal settlers, whose eviction would entail court actions that in turn, would require some amount of time. They also knew that the length of time that would take to conclude such court actions was not within their power to determine. Despite such knowledge, both parties still agreed to the stipulation that the payment of the balance of the purchase price would be deferred until the informal settlers are ejected. There was never any allegation that PLU was coerced into signing the Deed of Sale with Mortgage or that its consent was in any way vitiated. PLU was free to accept or decline such contracted provision. Thus, PLU (unread text) be allowed to renege on its agreement. Justice J. B. L. Reyes. In Gregorio Araneta, Inc., v. Phil. Sugar Estate Development Co., Inc.,39 (unread text) against a similar factual milieu, stated the following apl observation.
1wphi1

In this connection, it is to be borne in mind that the (unread text) shows that the parties were fully aware that the land described (unread text) was occupied by squatters, because the fact is expressly mentioned therein (Rec. on Appeal, Petitioners Appendix B, pp. 12-13). As the parties must have known that they could not take the law into their own hands, but must resort to legal processes in evicting the squatters, they must have realized that the duration of the suits to be brought would not be under their control nor could the same be determine in advance. The conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc. (Emphasis supplied.) WHEREFORE, premises considered, the instant petition is hereby DENIED. No costs. SO ORDERED.

Mortgage; escalation clause. We consider to be unsubstantiated the petitioners claim of their lack of consent to the escalation clauses. They did not adduce evidence to show that they did not assent to the increases in the interest rates. The records reveal instead that they requested only the reduction of the interest rate or the restructuring of their loans. Escalation clauses are valid and do not contravene public policy. These clauses are common in credit agreements as means of maintaining fiscal stability and retaining the value of money on longterm contracts. Any increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement between the parties. Thus, any change must be mutually agreed upon, otherwise, the change carries no binding effect. Spouses Humberto Delos Santos and Carmencita Delos Santos vs. Metropolitan Bank and Trust Company G.R. No. 153852. October 24, 2012 G.R. No. 153852 October 24, 2012 SPOUSES HUMBERTO P. DELOSSANTOS AND CARMENCITA M. DELOS SANTOS, Petitioners, vs. METROPOLITAN BANK AND TRUST COMPANY, Respondent. DECISION BERSAMIN, J.: A writ of preliminary injunction to enjoin an impending extrajudicial foreclosure sale is issued only upon a clear showing of a violation of the mortgagor's unmistakable right.1 This appeal is taken by the petitioners to review and reverse the decision promulgated on February 19, 2002,2whereby the Court of Appeals (CA) dismissed their petition for certiorari that assailed the denial by the Regional Trial Court in Davao City (RTC) of their application for the issuance of a writ of preliminary injunction to prevent the extrajudicial foreclosure sale of their mortgaged asset initiated by their mortgagee, respondent Metropolitan Bank and Trust Company (Metrobank). Antecedents From December 9, 1996 until March 20, 1998, the petitioners took out several loans totaling P12,000,000.00 from Metrobank, Davao City Branch, the proceeds of which they would use in constructing a hotel on their 305-square-meter parcel of land located in Davao City and covered by Transfer Certificate of Title No. I-218079 of the Registry of Deeds of Davao City. They executed various promissory notes covering the loans, and constituted a mortgage over their parcel of land to secure the performance of their obligation. The stipulated interest rates were 15.75% per annum for the long term loans (maturing on December 9, 2006) and 22.204% per annum for a short term loan of P4,400,000.00 (maturing on March 12, 1999).3 The interest rates were fixed for the first year, subject to escalation or de-escalation in certain events without advance notice to them. The loan agreements further stipulated that the entire amount of the loans would become due and demandable upon default in the payment of any installment, interest or other charges.4 On December 27, 1999, Metrobank sought the extrajudicial foreclosure of the real estate mortgage 5 after the petitioners defaulted in their installment payments. The petitioners were notified of the foreclosure and of the forced sale being scheduled on March 7, 2000. The notice of the sale stated that the total amount of the obligation was P16,414,801.36 as of October 26, 1999.6 On April 4, 2000, prior to the scheduled foreclosure sale (i.e., the original date of March 7, 2000 having been meanwhile reset to April 6, 2000), the petitioners filed in the RTC a complaint (later amended) for damages, fixing of interest rate, and application of excess payments (with prayer for a writ of preliminary injunction). They alleged therein that Metrobank had no right to foreclose the mortgage because they were

not in default of their obligations; that Metrobank had imposed interest rates (i.e., 15.75% per annum for two long-term loans and 22.204% per annum for the short term loan) on three of their loans that were different from the rate of 14.75% per annum agreed upon; that Metrobank had increased the interest rates on some of their loans without any basis by invoking the escalation clause written in the loan agreement; that they had paid P2,561,557.87 instead of only P1,802,867.00 based on the stipulated interest rates, resulting in their excess payment of P758,690.87 as interest, which should then be applied to their accrued obligation; that they had requested the reduction of the escalated interest rates on several occasions because of its damaging effect on their hotel business, but Metrobank had denied their request; and that they were not yet in default because the long-term loans would become due and demandable on December 9, 2006 yet and they had been paying interest on the short-term loan in advance. The complaint prayed that a writ of preliminary injunction to enjoin the scheduled foreclosure sale be issued. They further prayed for a judgment making the injunction permanent, and directing Metrobank, namely: (a) to apply the excess payment of P758,690.87 to the accrued interest; (b) to pay P150,000.00 for the losses suffered in their hotel business; (c) to fix the interest rates of the loans; and (d) to pay moral and exemplary damages plus attorneys fees.7 In its answer, Metrobank stated that the increase in the interest rates had been made pursuant to the escalation clause stipulated in the loan agreements; and that not all of the payments by the petitioners had been applied to the loans covered by the real estate mortgage, because some had been applied to another loan of theirs amounting to P500,000.00 that had not been secured by the mortgage. In the meantime, the RTC issued a temporary restraining order to enjoin the foreclosure sale. 8 After hearing on notice, the RTC issued its order dated May 2, 2000, 9 granting the petitioners application for a writ of preliminary injunction. Metrobank moved for reconsideration.10 The petitioners did not file any opposition to Metrobanks motion for reconsideration; also, they did not attend the scheduled hearing of the motion for reconsideration. On May 19, 2000, the RTC granted Metrobanks motion for reconsideration, holding in part,11 as follows: xxx In the motion at bench as well as at the hearing this morning defendant Metro Bank pointed out that in all the promissory notes executed by the plaintiffs there is typewritten inside a box immediately following the first paragraph the following: "At the effective rate of 15.75% for the first year subject to upward/downward adjustments for the next year thereafter." Moreover, in the form of the same promissory notes, there is the additional stipulation which reads: "The rate of interest and/or bank charges herein-stipulated, during the term of this Promissory Note, its extension, renewals or other modifications, may be increased, decreased, or otherwise changed from time to time by the bank without advance notice to me/us in the event of changes in the interest rates prescribed by law of the Monetary Board of the Central Bank of the Philippines, in the rediscount rate of member banks with the Central Bank of the Philippines, in the interest rates on savings and time deposits, in the interest rates on the Banks borrowings, in the reserve requirements, or in the overall costs of funding or money;" There being no opposition to the motion despite receipt of a copy thereof by the plaintiffs through counsel and finding merit to the motion for reconsideration, this Court resolves to reconsider and set aside the Order of this Court dated May 2, 2000. xxxx SO ORDERED. The petitioners sought the reconsideration of the order, for which the RTC required the parties to submit their respective memoranda. In their memorandum, the petitioners insisted that they had an excess payment sufficient to cover the amounts due on the principal. Nonetheless, on June 8, 2001, the RTC denied the petitioners motion for reconsideration,12 to wit:

The record does not show that plaintiffs have updated their installment payments by depositing the same with this Court, with the interest thereon at the rate they contend to be the true and correct rate agreed upon by the parties. Hence, even if their contention with respect to the rates of interest is true and correct, they are in default just the same in the payment of their principal obligation. WHEREFORE, the MOTION FOR RECONSIDERATION is denied. Ruling of the CA Aggrieved, the petitioners commenced a special civil action for certiorari in the CA, ascribing grave abuse of discretion to the RTC when it issued the orders dated May 19, 2000 and June 8, 2001. On February 19, 2002, the CA rendered the assailed decision dismissing the petition for certiorari for lack of merit, and affirming the assailed orders,13 stating: Petitioners aver that the respondent Court gravely abused its discretion in finding that petitioners are in default in the payment of their obligation to the private respondent. We disagree. The Court below did not excessively exercise its judicial authority not only in setting aside the May 2, 2000 Order, but also in denying petitioners motion for reconsideration due to the faults attributable to them. When private respondent Metrobank moved for the reconsideration of the Order of May 2, 2000 which granted the issuance of the writ of preliminary injunction, petitioners failed to oppose the same despite receipt of said motion for reconsideration. The public respondent Court said "For resolution is the Motion for Reconsideration filed by the defendant Metropolitan Bank and Trust Company, dated May 12, 2000, a copy of which was received by Atty. Philip Pantojan for the plaintiffs on May 16, 2000. There is no opposition nor appearance for the plaintiffs this morning at the scheduled hearing of said motion x x x". Corollarily, the issuance of the Order of June 8, 2001 was xxx based on petitioners being remiss in their obligation to update their installment payments. The Supreme Court ruled in this wise: To justify the issuance of the writ of certiorari, the abuse of discretion on the part of the tribunal or officer must be grave, as when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility. Petitioners likewise discussed at length the issue of whether or not the private respondent has collected the right interest rate on the loans they obtained from the private respondent, as well as the propriety of the application of escalated interest rate which was applied to their loans by the latter. In the instant petition, questions of fact are not generally permitted, the inquiry being limited essentially to whether the public respondent acted without or in excess of its jurisdiction or with grave abuse of discretion in issuing the questioned Orders, neither is the instant petition available to correct mistakes in the judges findings and conclusions, nor to cure erroneous conclusions of law and fact, if there be any. Certiorari will issue only to correct errors of jurisdiction, not errors of procedure or mistakes in the findings or conclusions of the lower court. A review of facts and evidence is not the province of the extraordinary remedy of certiorari. WHEREFORE, the petition is DENIED for lack of merit. The assailed Orders of the respondent Court are AFFIRMED. SO ORDERED. The petitioners moved for reconsideration of the decision, but the CA denied the motion for lack of merit on May 7, 2002.14 Hence, this appeal.

Issues The petitioners pose the following issues, namely: 1. Whether or not the Presiding Judge in issuing the 08 June 2001 Order, finding the petitioners in default of their obligation with the Bank, has committed grave abuse of discretion amounting to excess or lack of jurisdiction as the same run counter against the legal principle enunciated in the Almeda Case; 2. Assuming that the Presiding Judge did not excessively exercise his judicial authority in the issuance of the assailed orders, notwithstanding their consistency with the legal principle enunciated in the Almeda Case, whether or not the petitioners can avail of the remedy under Rule 65, taking into consideration the sense of urgency involved in the resolution of the issue raised; 3. Whether or not the Petition lodged before the Court of Appeals presented a question of fact, and hence not within the province of the extraordinary remedy of certiorari.15 The petitioners argue that the foreclosure of their mortgage was premature; that they could not yet be considered in default under the ruling in Almeda v. Court of Appeals,16 because the trial court was still to determine with certainty the exact amount of their obligation to Metrobank; that they would likely prevail in their action because Metrobank had altered the terms of the loan agreement by increasing the interest rates without their prior assent; and that unless the foreclosure sale was restrained their action would be rendered moot. They urge that despite finding no grave abuse of discretion on the part of the RTC in denying their application for preliminary injunction, the CA should have nonetheless issued a writ of certiorari considering that they had no other plain and speedy remedy. Metrobank counters that Almeda v. Court of Appeals was not applicable because that ruling presupposed the existence of the following conditions, to wit: (a) the escalation and de-escalation of the interest rate were subject to the agreement of the parties; (b) the petitioners as obligors must have protested the highly escalated interest rates prior to the application for foreclosure; (c) they must not be in default in their obligations; (d) they must have tendered payment to Metrobank equivalent to the principal and accrued interest calculated at the originally stipulated rate; and (e) upon refusal of Metrobank to receive payment, they should have consigned the tendered amount in court. 17 It asserts that the petitioners loans, unlike the obligation involved in Almeda v. Court of Appeals, had already matured prior to the filing of the case, and that they had not tendered or consigned in court the amount of the principal and the accrued interest at the rate they claimed to be the correct one.18 Based on the foregoing, the issues to be settled are, firstly, whether the petitioners had a cause of action for the grant of the extraordinary writ of certiorari; and, secondly, whether the petitioners were entitled to the writ of preliminary injunction in light of the ruling in Almeda v. Court of Appeals. Ruling The appeal has no merit. To begin with, the petitioners resort to the special civil action of certiorari to assail the May 19, 2000 order of the RTC (reconsidering and setting aside its order dated May 2, 2000 issuing the temporary restraining order against Metrobank to stop the foreclosure sale) was improper. They thereby apparently misapprehended the true nature and function of a writ of certiorari. It is clear to us, therefore, that the CA justly and properly dismissed their petition for the writ of certiorari. We remind that the writ of certiorari being a remedy narrow in scope and inflexible in character, whose purpose is to keep an inferior court within the bounds of its jurisdiction, or to prevent an inferior court from committing such grave abuse of discretion amounting to excess of jurisdiction, or to relieve parties from arbitrary acts of courts (i.e., acts that courts have no power or authority in law to perform) is not a general utility tool in the legal workshop,19 and cannot be issued to correct every error committed by a lower court. In the common law, from which the remedy of certiorari evolved, the writ of certiorari was issued out of Chancery, or the Kings Bench, commanding agents or officers of the inferior courts to return the record of a cause pending before them, so as to give the party more sure and speedy justice, for the writ would enable the superior court to determine from an inspection of the record whether the inferior courts judgment was rendered without authority.20 The errors were of such a nature that, if allowed to stand, they would result in

a substantial injury to the petitioner to whom no other remedy was available.21 If the inferior court acted without authority, the record was then revised and corrected in matters of law. 22 The writ of certiorari was limited to cases in which the inferior court was said to be exceeding its jurisdiction or was not proceeding according to essential requirements of law and would lie only to review judicial or quasi-judicial acts.23 The concept of the remedy of certiorari in our judicial system remains much the same as it has been in the common law. In this jurisdiction, however, the exercise of the power to issue the writ of certiorari is largely regulated by laying down the instances or situations in the Rules of Court in which a superior court may issue the writ of certiorari to an inferior court or officer. Section 1, Rule 65 of the Rules of Court compellingly provides the requirements for that purpose, viz: Section 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum shopping as provided in the third paragraph of section 3, Rule 46. (1a) Pursuant to Section 1, supra, the petitioner must show that, one, the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction, and, two, there is neither an appeal nor any plain, speedy and adequate remedy in the ordinary course of law for the purpose of amending or nullifying the proceeding. Considering that the requisites must concurrently be attendant, the herein petitioners stance that a writ of certiorari should have been issued even if the CA found no showing of grave abuse of discretion is absurd. The commission of grave abuse of discretion was a fundamental requisite for the writ of certiorari to issue against the RTC. Without their strong showing either of the RTCs lack or excess of jurisdiction, or of grave abuse of discretion by the RTC amounting to lack or excess of jurisdiction, the writ of certiorari would not issue for being bereft of legal and factual bases. We need to emphasize, too, that with certiorari being an extraordinary remedy, they must strictly observe the rules laid down by law for granting the relief sought.24 The sole office of the writ of certiorari is the correction of errors of jurisdiction, which includes the commission of grave abuse of discretion amounting to lack of jurisdiction. In this regard, mere abuse of discretion is not enough to warrant the issuance of the writ. The abuse of discretion must be grave, which means either that the judicial or quasi-judicial power was exercised in an arbitrary or despotic manner by reason of passion or personal hostility, or that the respondent judge, tribunal or board evaded a positive duty, or virtually refused to perform the duty enjoined or to act in contemplation of law, such as when such judge, tribunal or board exercising judicial or quasi-judicial powers acted in a capricious or whimsical manner as to be equivalent to lack of jurisdiction. Secondly, the Court must find that the petitioners were not entitled to enjoin or prevent the extrajudicial foreclosure of their mortgage by Metrobank. They were undeniably already in default of their obligations the performance of which the mortgage had precisely secured. Hence, Metrobank had the unassailable right to the foreclosure. In contrast, their right to prevent the foreclosure did not exist. Hence, they could not be validly granted the injunction they sought. The foreclosure of a mortgage is but a necessary consequence of the non-payment of an obligation secured by the mortgage. Where the parties have stipulated in their agreement, mortgage contract and promissory note that the mortgagee is authorized to foreclose the mortgage upon the mortgagors default, the mortgagee has a clear right to the foreclosure in case of the mortgagors default. Thereby, the issuance of a writ of preliminary injunction upon the application of the mortgagor will be improper. 25 Mindful that an injunction would be a limitation upon the freedom of action of Metrobank, the RTC justifiably refused to grant the petitioners application for the writ of preliminary injunction. We underscore that the writ could be

granted only if the RTC was fully satisfied that the law permitted it and the emergency demanded it. 26 That, needless to state, was not true herein. In City Government of Butuan v. Consolidated Broadcasting System (CBS), Inc.,27 the Court restated the nature and concept of a writ of preliminary injunction in the following manner, to wit: A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment or final order requiring a party or a court, an agency, or a person to refrain from a particular act or acts. It may also require the performance of a particular act or acts, in which case it is known as a preliminary mandatory injunction. Thus, a prohibitory injunction is one that commands a party to refrain from doing a particular act, while a mandatory injunction commands the performance of some positive act to correct a wrong in the past.
1wphi1

As with all equitable remedies, injunction must be issued only at the instance of a party who possesses sufficient interest in or title to the right or the property sought to be protected. It is proper only when the applicant appears to be entitled to the relief demanded in the complaint, which must aver the existence of the right and the violation of the right, or whose averments must in the minimum constitute a prima facie showing of a right to the final relief sought. Accordingly, the conditions for the issuance of the injunctive writ are: (a) that the right to be protected exists prima facie; (b) that the act sought to be enjoined is violative of that right; and (c) that there is an urgent and paramount necessity for the writ to prevent serious damage. An injunction will not issue to protect a right not in esse, or a right which is merely contingent and may never arise; or to restrain an act which does not give rise to a cause of action; or to prevent the perpetration of an act prohibited by statute. Indeed, a right, to be protected by injunction, means a right clearly founded on or granted by law or is enforceable as a matter of law. (Bold emphasis supplied) Thirdly, the petitioners allege that: (a) Metrobank had increased the interest rates without their assent and without any basis; and (b) they had an excess payment sufficient to cover the amounts due. In support of their allegation, they submitted a table of the interest payments, wherein they projected what they had actually paid to Metrobank and contrasted the payments to what they claimed to have been the correct amounts of interest, resulting in an excess payment of P605,557.81. The petitioners fail to convince. We consider to be unsubstantiated the petitioners claim of their lack of consent to the escalation clauses. They did not adduce evidence to show that they did not assent to the increases in the interest rates. The records reveal instead that they requested only the reduction of the interest rate or the restructuring of their loans.28 Moreover, the mere averment that the excess payments were sufficient to cover their accrued obligation computed on the basis of the stipulated interest rate cannot be readily accepted. Their computation, as their memorandum submitted to the RTC would explain,29 was too simplistic, for it factored only the principal due but not the accrued interests and penalty charges that were also stipulated in the loan agreements. It is relevant to observe in this connection that escalation clauses like those affecting the petitioners were not void per se, and that an increase in the interest rate pursuant to such clauses were not necessarily void. In Philippine National Bank v. Rocamora,30 the Court has said: Escalation clauses are valid and do not contravene public policy. These clauses are common in credit agreements as means of maintaining fiscal stability and retaining the value of money on long-term contracts. To avoid any resulting one-sided situation that escalation clauses may bring, we required in Banco Filipino the inclusion in the parties agreement of a de-escalation clause that would authorize a reduction in the interest rates corresponding to downward changes made by law or by the Monetary Board. The validity of escalation clauses notwithstanding, we cautioned that these clauses do not give creditors the unbridled right to adjust interest rates unilaterally. As we said in the same Banco Filipino case, any increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement between the parties. The minds of all the parties must meet on the proposed modification as this modification affects an important aspect of the agreement. There can be no contract in the true sense in the absence of the element of an agreement, i.e., the parties mutual consent. Thus, any change must be mutually agreed upon, otherwise, the change carries no binding effect. A stipulation on the validity or

compliance with the contract that is left solely to the will of one of the parties is void; the stipulation goes against the principle of mutuality of contract under Article 1308 of the Civil Code. We reiterate that injunction will not protect contingent, abstract or future rights whose existence is doubtful or disputed.31 Indeed, there must exist an actual right,32 because injunction will not be issued to protect a right not in esse and which may never arise, or to restrain an act which does not give rise to a cause of action. At any rate, an application for injunctive relief is strictly construed against the pleader.33 Nor do we discern any substantial controversy that had any real bearing on Metrobanks right to foreclose the mortgage. The mere possibility that the RTC would rule in the end in the petitioners favor by lowering the interest rates and directing the application of the excess payments to the accrued principal and interest did not diminish the fact that when Metrobank filed its application for extrajudicial foreclosure they were already in default as to their obligations and that their short-term loan of P4,400,000.00 had already matured. Under such circumstances, their application for the writ of preliminary injunction could not but be viewed as a futile attempt to deter or delay the forced sale of their property. Lastly, citing the ruling in Almeda v. Court of Appeals, to the effect that the issuance of a preliminary injunction pending the resolution of the issue on the correct interest rate would be justified, the petitioners submit that they could be rightly considered in default only after they had failed to settle the exact amount of their obligation as determined by the trial court in the main case. The petitioners reliance on the ruling in Almeda v. Court of Appeals was misplaced. Although it is true that the ruling in Almeda v. Court of Appeals sustained the issuance of the preliminary injunction pending the determination of the issue on the interest rates, with the Court stating: In the first place, because of the dispute regarding the interest rate increases, an issue which was never settled on merit in the courts below, the exact amount of petitioners obligations could not be determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent bank only after settlement of the question involving the interest rate on the loan, and only after the spouses refused to meet their obligations following such determination.34 x x x. Almeda v. Court of Appeals involved circumstances that were far from identical with those obtaining herein. To start with, Almeda v. Court of Appeals involved the mandatory foreclosure of a mortgage by a government financial institution pursuant to Presidential Decree No. 38535 should the arrears reach 20% of the total outstanding obligation. On the other hand, Metrobank is not a government financial institution. Secondly, the petitioners in Almeda v. Court of Appeals were not yet in default at the time they brought the action questioning the propriety of the interest rate increases, hut the herein petitioners were already in default and the mortgage had already been foreclosed when they assailed the interest rates in court. Thirdly, the Court found in Almeda v. Court of Appeals that the increases in the interest rates had been made without the prior assent of the borrowers, who had even consistently protested the increases in the stipulated interest rate. In contrast, the Court cannot make the same conclusion herein for lack of basis. Fourthly, the interest rates in Almeda v. Court of Appeals were raised to such a very high level that the borrowers were practically enslaved and their assets depleted, with the interest rate even reaching at one point a high of 68% per annum. Here, however, the increases reached a high of only 31% per annum, according to the petitioners themselves. Lastly, the Court in Almeda v. Court of Appeals attributed good faith to the petitioners by their act of consigning in court the amounts of what they believed to be their remaining obligation. No similar tender or consignation of the amount claimed by the petitioners herein to be their correct outstanding obligation was made by them. In fine, the petitioners in Almeda v. Court o{Appeals had the existing right to a writ of preliminary injunction pending the resolution of the main case, but the herein petitioners did not. Stated otherwise, no writ of preliminary injunction to enjoin an impending extrajudicial foreclosure sale should issue except upon a clear showing of a violation of the mortgagors' unmistakable right to the injunction. WHEREFORE, the Court UENIES the petition for review on certiorari; AFFIRMS the decision promulgated on February 19, 2002; and ORDERS the petitioners to pay the costs of suit. SO ORDERED.