G.R. No.

128991

April 12, 2000

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO

PORMIDA, petitioners,
vs.
HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC,
Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC., respondents.

KAPUNAN, J.:
Reformation. of an instrument is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the
parties when some error or mistake has been committed. 1 It is predicated on the
equitable maxim that equity treats as done that which ought to be
done. 2 Therationale of the doctrine is that it would be unjust and unequitable to allow
the enforcement of a written instrument which does not reflect or disclose the real
meeting of the minds of the parties. 3 However, an action for reformation must be
brought within the period prescribed by law, otherwise, it will be barred by the mere
lapse of time. The issue in this case is whether or not the complaint for reformation
filed by respondent Leyte Gulf Traders, Inc. has prescribed and in the negative,
whether or not it is entitled to the remedy of reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as
respondent corporation) filed a complaint for reformation of instrument, specific
performance, annulment of conditional sale and damages with prayer for writ of
injunction against petitioners Yolanda Rosello-Bentir and the spouses Samuel and
Charito Pormida. The case was docketed as Civil Case No. 92-05-88 and raffled to
Judge Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent corporation
alleged that it entered into a contract of lease of a parcel of land with petitioner Bentir
for a period of twenty (20) years starting May 5, 1968. According to respondent
corporation, the lease was extended for another four (4) years or until May 31, 1992.
On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses
Samuel Pormada and Charito Pormada. Respondent corporation questioned the sale
alleging that it had a right of first refusal. Rebuffed, it filed Civil Case No. 92-05-88
seeking the reformation of the expired contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of lease executed in 1968, the
verbal agreement or understanding between the parties that in the event petitioner
Bentir leases or sells the lot after the expiration of the lease, respondent corporation
has the right to equal the highest offer.
In due time, petitioners filed their answer alleging that the inadvertence of the lawyer
who prepared the lease contract is not a ground for reformation. They further
contended that respondent corporation is guilty of laches for not bringing the case for

reformation of the lease contract within the prescriptive period of ten (10) years from its
execution.
Respondent corporation then filed its reply and on November 18, 1992, filed a motion
to admit amended complaint. Said motion was granted by the lower court. 4
Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be
dismissed on the ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order
dismissing the complaint premised on its finding that the action for reformation had
already prescribed. The order reads:
ORDER
Resolved here is the defendants' MOTION TO DISMISS PLAINTIFF'S
complaint on ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered into a contract of
lease of a parcel of land on May 5, 1968 for a period of 20 years (and
renewed for an additional 4 years thereafter) with the verbal agreement that in
case the lessor decides to sell the property after the lease, she shall give the
plaintiff the right to equal the offers of other prospective buyers. It was
claimed that the lessor violated this tight of first refusal of the plaintiff when
she sureptitiously (sic) sold the land to co-defendant Pormida on May 5, 1989
under a Deed of Conditional Sale. Plaintiffs right was further violated when
after discovery of the final sale, plaintiff ordered to equal the price of codefendant Pormida was refused and again defendant Bentir surreptitiously
executed a final deed of sale in favor of co-defendant Pormida in December
11, 1991.
The defendant Bentir denies that she bound herself to give the plaintiff the
right of first refusal in case she sells the property. But assuming for the sake
of argument that such right of first refusal was made, it is now contended that
plaintiffs cause of action to reform the contract to reflect such right of first
refusal, has already prescribed after 10 years, counted from May 5, 1988
when the contract of lease incepted. Counsel for defendant cited Conde vs.
Malaga, L-9405 July 31, 1956 and Ramos vs. Court of Appeals, 180 SCRA
635, where the Supreme Court held that the prescriptive period for
reformation of a written contract is ten (10) years under Article 1144 of the
Civil Code.
This Court sustains the position of the defendants that this action for
reformation of contract has prescribed and hereby orders the dismissal of the
case.

SO ORDERED. 5

agreement (sic) is made apparent by paragraph 4 of the lease agreement

stating:

On December 29, 1995, respondent corporation filed a motion for reconsideration of

the order dismissing the complaint.
On January 11, 1996, respondent corporation filed an urgent ex-parte motion for
issuance of an order directing the petitioners, or their representatives or agents to
refrain from taking possession of the land in question.
Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution,
was assigned to the RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad
was designated in his place.
On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself
from hearing the case. Consequently, the case was re-raffled and assigned to RTC,
Tacloban City, Branch 8, presided by herein respondent judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order reversing the order of dismissal
on the grounds that the action for reformation had not yet prescribed and the dismissal
was "premature and precipitate", denying respondent corporation of its right to
procedural due process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin motions submitted by the
plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15 December 1995 of the
Court (RTC, Br. 7), dismissing this case, on the sole ground of
prescription of one (1) of the five (5) causes of action of plaintiff in its
complaint for "reformation" of a contract of lease; and,
(2) for issuance by this Court of an Order prohibiting the defendants
and their privies-in-interest, from taking possession of the leased
premises, until a final court order issues for their exercise of
dominical or possessory right thereto.
The records of this case reveal that co-defendant BENTER (Yolanda) and
plaintiff Leyte Gulf Traders Incorporation, represented by Chairman Benito
Ang, entered into a contract of lease of a parcel of land, denominated as Lot
No. 878-D, located at Sagkahan District, Tacloban City, on 05 May 1968, for a
period of twenty (20) years, (later renewed for an additional two (2) years).
Included in said covenant of lease is the verbal understanding and agreement
between the contracting parties, that when the defendant (as lessor) will sell
the subject property, the plaintiff as (lessee) has the "right of first refusal", that
is, the right to equal the offer of any other prospective third-party buyer. This

4. IMPROVEMENT. The lessee shall have the right to erect on the

leased premises any building or structure that it may desire without
the consent or approval of the Lessor . . . provided that any
improvements existing at the termination of the lease shall remain as
the property of the Lessor without right to reimbursement to the
Lessee of the cost or value thereof.
That the foregoing provision has been included in the lease agreement if only
to convince the defendant-lessor that plaintiff desired a priority right to acquire
the property (ibid) by purchase, upon expiration of the effectivity of the deed
of lease.
In the course of the interplay of several procedural moves of the parties
herein, the defendants filed their motion to admit their amended answer to
plaintiff's amended complaint. Correspondingly, the plaintiff filed its opposition
to said motion. The former court branch admitted the amended answer, to
which order of admission, the plaintiff seasonably filed its motion for
reconsideration. But, before the said motion for reconsideration was acted
upon by the court, the latter issued an Order on 15 December 1995,
DISMISSING this case on the lone ground of prescription of the cause of
action of plaintiff's complaint on "reformation" of the lease contract, without
anymore considering the remaining cause of action, viz.: (a) on Specific
Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a Writ of
Injunction, and (d) on Damages.
With due respect to the judicial opinion of the Honorable Presiding Judge of
Branch 7 of this Court, the undersigned, to whom this case was raffled to after
the inhibition of Judge Roberto Navidad, as acting magistrate of Branch 7,
feels not necessary any more to discuss at length that even the cause of
action for "reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted to above, was
obviously premature and precipitate, thus resulting denial upon the right of
plaintiff that procedural due process. The other remaining four (4) causes of
action of the complaint must have been deliberated upon before that court
acted hastily in dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order of the court,
(Branch 7, RTC) dismissing this case, is hereby ordered RECONSIDERED
and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order admitting the
amended answer and the Motion to Dismiss this case (ibid), be set for
hearing on May 24, 1996, at 8:30 o'clock in the morning. Service of notices

must be effected upon parties and counsel as early as possible before said
scheduled date.

COMPLY WITH THE PROVISIONS OF RULE 58 OF THE RULES OF

COURT. 10

Concomitantly, the defendants and their privies-in-interest or agents, are

hereby STERNLY WARNED not to enter, in the meantime, the litigated
premises, before a final court order issues granting them dominical as well as
possessory right thereto.

The petition has merit.

To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C.
Lawsin, the defendants may, if they so desire, file their answer or rejoinder
thereto, before the said petition will be set for hearing. The latter are given ten
(10) days to do so, from the date of their receipt of a copy of this Order.

The remedy of reformation of an instrument is grounded on the principle of equity

where, in order to express the true intention of the contracting parties, an instrument
already executed is allowed by law to be reformed. The right of reformation is
necessarily an invasion or limitation of the parol evidence rule since, when a writing is
reformed, the result is that an oral agreement is by court decree made legally
effective. 11 Consequently, the courts, as the agencies authorized by law to exercise
the power to reform an instrument, must necessarily exercise that power sparingly and
with great caution and zealous care. Moreover, the remedy, being an extraordinary
one, must be subject to limitations as may be provided by law. Our law and
jurisprudence set such limitations, among which is laches. A suit for reformation of an
instrument may be barred by lapse of time. The prescriptive period for actions based
upon a written contract and for reformation of an instrument is ten (10) years under
Article 1144 of the Civil Code. 12 Prescription is intended to suppress stale and
fraudulent claims arising from transactions like the one at bar which facts had become
so obscure from the lapse of time or defective memory. 13 In the case at bar,
respondent corporation had ten (10) years from 1968, the time when the contract of
lease was executed, to file an action for reformation. Sadly, it did so only on May 15,
1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of
action has become stale, hence, time-barred.

SO ORDERED. 6
On June 10, 1996, respondent judge issued an order for status quo ante, enjoining
petitioners to desist from occupying the property. 7
Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals
seeking the annulment of the order of respondent court with prayer for issuance of a
writ of preliminary injunction and temporary restraining order to restrain respondent
judge from further hearing the case and to direct respondent corporation to desist from
further possessing the litigated premises and to turn over possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error in the questioned
order nor grave abuse of discretion on the part of the trial court that would amount to
lack, or in excess of jurisdiction, denied the petition and affirmed the questioned
order. 8 A reconsideration of said decision was, likewise, denied on April 16, 1997. 9
Thus, the instant petition for review based on the following assigned errors, viz:
6:01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION
FOR REFORMATION IS PROPER AND JUSTIFIED UNDER THE
CIRCUMSTANCES OF THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION
FOR REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO
BUY IN A CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED
RENEWAL OF SUCH LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS
QUO ANTE ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD

The core issue that merits our consideration is whether the complaint for reformation of
instrument has prescribed.1awp++i1

In holding that the action for reformation has not prescribed, the Court of Appeals
upheld the ruling of the Regional Trial Court that the 10-year prescriptive period should
be reckoned not from the execution of the contract of lease in 1968, but from the date
of the alleged 4-year extension of the lease contract after it expired in 1988.
Consequently, when the action for reformation of instrument was filed in 1992 it was
within ten (10) years from the extended period of the lease. Private respondent
theorized, and the Court of Appeals agreed, that the extended period of lease was an
"implied new lease" within the contemplation of Article 1670 of the Civil Code, 14under
which provision, the other terms of the original contract were deemed revived in the
implied new lease.
We do not agree. First, if, according to respondent corporation, there was an
agreement between the parties to extend the lease contract for four (4) years after the
original contract expired in 1988, then Art. 1670 would not apply as this provision
speaks of an implied new lease (tacita reconduccion) where at the end of the contract,
the lessee continues to enjoy the thing leased "with the acquiescence of the lessor", so
that the duration of the lease is "not for the period of the original contract, but for the
time established in Article 1682 and 1687." In other words, if the extended period of
lease was expressly agreed upon by the parties, then the term should be exactly what

the parties stipulated, not more, not less. Second, even if the supposed 4-year
extended lease be considered as an implied new lease under Art. 1670, "the other
terms of the original contract" contemplated in said provision are only those terms
which are germane to the lessee's right of continued enjoyment of the property
leased. 15 The prescriptive period of ten (10) years provided for in Art. 1144 16 applies
by operation of law, not by the will of the parties. Therefore, the right of action for
reformation accrued from the date of execution of the contract of lease in 1968.
Even if we were to assume for the sake of argument that the instant action for
reformation is not time-barred, respondent corporation's action will still not prosper.
Under Section 1, Rule 64 of the New Rules of Court, 17 an action for the reformation of
an instrument is instituted as a special civil action for declaratory relief. Since the
purpose of an action for declaratory relief is to secure an authoritative statement of the
rights and obligations of the parties for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it
may be entertained only before the breach or violation of the law or contract to which it
refers. 18 Here, respondent corporation brought the present action for reformation after
an alleged breach or violation of the contract was already committed by petitioner
Bentir. Consequently, the remedy of reformation no longer lies.
We no longer find it necessary to discuss the other issues raised considering that the
same are predicated upon our affirmative resolution on the issue of the prescription of
the action for reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals
dated January 17, 1997 is REVERSED and SET ASIDE. The Order of the Regional
Trial Court of Tacloban City, Branch 7, dated December 15, 1995 dismissing the action
for reformation is REINSTATED.1wphi1.nt
SO ORDERED.
G.R. No. 184109

February 1, 2012

CELERINO E. MERCADO, Petitioner,

vs.
BELEN* ESPINOCILLA** AND FERDINAND ESPINOCILLA, Respondents.
DECISION
VILLARAMA, JR., J.:
The Case

of title, partial declaration of nullity of deeds and documents, and damages, on the
ground of prescription.
The Antecedent Facts
Doroteo Espinocilla owned a parcel of land, Lot No. 552, with an area of 570 sq. m.,
located at Magsaysay Avenue, Zone 5, Bulan, Sorsogon. After he died, his five
children, Salvacion, Aspren, Isabel, Macario, and Dionisia divided Lot No. 552 equally
among themselves. Later, Dionisia died without issue ahead of her four siblings, and
Macario took possession of Dionisias share. In an affidavit of transfer of real
property4 dated November 1, 1948, Macario claimed that Dionisia had donated her
share to him in May 1945.
Thereafter, on August 9, 1977, Macario and his daughters Betty Gullaba and Saida
Gabelo sold5 225 sq. m. to his son Roger Espinocilla, husband of respondent Belen
Espinocilla and father of respondent Ferdinand Espinocilla. On March 8, 1985, Roger
Espinocilla sold6 114 sq. m. to Caridad Atienza. Per actual survey of Lot No. 552,
respondent Belen Espinocilla occupies 109 sq. m., Caridad Atienza occupies 120 sq.
m., Caroline Yu occupies 209 sq. m., and petitioner, Salvacion's son, occupies 132 sq.
m.7
The Case For Petitioner
Petitioner sued the respondents to recover two portions: an area of 28.58 sq. m. which
he bought from Aspren and another 28.5 sq. m. which allegedly belonged to him but
was occupied by Macarios house.9 His claim has since been modified to an alleged
encroachment of only 39 sq. m. that he claims must be returned to him. He avers that
he is entitled to own and possess 171 sq. m. of Lot No. 552, having inherited 142.5 sq.
m. from his mother Salvacion and bought 28.5 sq. m. from his aunt Aspren. According
to him, his mothers inheritance is 142.5 sq. m., that is, 114 sq. m. from Doroteo plus
28.5 sq. m. from Dionisia. Since the area he occupies is only 132 sq. m.,10 he claims
that respondents encroach on his share by 39 sq. m.11
The Case For Respondents
Respondents agree that Doroteos five children each inherited 114 sq. m. of Lot No.
552. However, Macarios share increased when he received Dionisias share.
Macarios increased share was then sold to his son Roger, respondents husband and
father. Respondents claim that they rightfully possess the land they occupy by virtue of
acquisitive prescription and that there is no basis for petitioners claim of
encroachment.12
The Trial Courts Decision

Petitioner Celerino E. Mercado appeals the Decision dated April 28, 2008 and
Resolution2 dated July 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No.
87480. The CA dismissed petitioners complaint3 for recovery of possession, quieting

On May 15, 2006, the Regional Trial Court (RTC) ruled in favor of petitioner and held
that he is entitled to 171 sq. m. The RTC found that petitioner inherited 142.5 sq. m.

from his mother Salvacion and bought 28.5 sq. m. from his aunt Aspren. The RTC
computed that Salvacion, Aspren, Isabel and Macario each inherited 142.5 sq. m. of
Lot No. 552. Each inherited 114 sq. m. from Doroteo and 28.5 sq. m. from Dionisia.
The RTC further ruled that Macario was not entitled to 228 sq. m. Thus, respondents
must return 39 sq. m. to petitioner who occupies only 132 sq. m.13
There being no public document to prove Dionisias donation, the RTC also held that
Macarios 1948 affidavit is void and is an invalid repudiation of the shares of his sisters
Salvacion, Aspren, and Isabel in Dionisias share. Accordingly, Macario cannot acquire
said shares by prescription. The RTC further held that the oral partition of Lot No. 552
by Doroteos heirs did not include Dionisias share and that partition should have been
the main action. Thus, the RTC ordered partition and deferred the transfer of
possession of the 39 sq. m. pending partition.14 The dispositive portion of the RTC
decision reads:
WHEREFORE, in view of the foregoing premises, the court issues the following
ORDER, thus a) Partially declaring the nullity of the Deed of Absolute Sale of Property dated
August 9, 1977 x x x executed by Macario Espinocilla, Betty E. Gullaba and
Saida E. Gabelo in favor of Roger Espinocilla, insofar as it affects the portion
or the share belonging to Salvacion Espinocilla, mother of [petitioner,] relative
to the property left by Dionisia Espinocilla, including [Tax Declaration] No.
13667 and other documents of the same nature and character which
emanated from the said sale;
b) To leave as is the Deeds of Absolute Sale of May 11, 1983 and March 8,
1985, it having been determined that they did not involve the portion
belonging to [petitioner] x x x.
c) To effect an effective and real partition among the heirs for purposes of
determining the exact location of the share (114 sq. m.) of the late Dionisia
Espinocilla together with the 28.5 sq. m. belonging to [petitioners] mother
Salvacion, as well as, the exact location of the 39 sq. m. portion belonging to
the [petitioner] being encroached by the [respondents], with the assistance of
the Commissioner (Engr. Fundano) appointed by this court.
d) To hold in abeyance the transfer of possession of the 39 sq. m. portion to
the [petitioner] pending the completion of the real partition above-mentioned.15
The CA Decision
On appeal, the CA reversed the RTC decision and dismissed petitioners complaint on
the ground that extraordinary acquisitive prescription has already set in in favor of
respondents. The CA found that Doroteos four remaining children made an oral
partition of Lot No. 552 after Dionisias death in 1945 and occupied specific portions.

The oral partition terminated the co-ownership of Lot No. 552 in 1945. Said partition
also included Dionisias share because the lot was divided into four parts only. And
since petitioners complaint was filed only on July 13, 2000, the CA concluded that
prescription has set in.16 The CA disposed the appeal as follows:
WHEREFORE, the appeal is GRANTED. The assailed May 15, 2006 Decision of the
Regional Trial Court (RTC) of Bulan, Sorsogon is hereby REVERSED and SET ASIDE.
The Complaint of the [petitioner] is hereby DISMISSED. No costs.17
The Instant Petition
The core issue to be resolved is whether petitioners action to recover the subject
portion is barred by prescription.
Petitioner confirms oral partition of Lot No. 552 by Doroteo's heirs, but claims that his
share increased from 114 sq. m. to 171 sq. m. and that respondents encroached on his
share by 39 sq. m. Since an oral partition is valid, the corresponding survey ordered by
the RTC to identify the 39 sq. m. that must be returned to him could be
made.18 Petitioner also alleges that Macario committed fraud in acquiring his share;
hence, any evidence adduced by him to justify such acquisition is inadmissible.
Petitioner concludes that if a person obtains legal title to property by fraud or
concealment, courts of equity will impress upon the title a so-called constructive trust in
favor of the defrauded party.19
The Courts Ruling
We affirm the CA ruling dismissing petitioners complaint on the ground of
prescription.1wphi1
Prescription, as a mode of acquiring ownership and other real rights over immovable
property, is concerned with lapse of time in the manner and under conditions laid down
by law, namely, that the possession should be in the concept of an owner, public,
peaceful, uninterrupted, and adverse. Acquisitive prescription of real rights may be
ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good
faith and with just title for 10 years. In extraordinary prescription, ownership and other
real rights over immovable property are acquired through uninterrupted adverse
possession for 30 years without need of title or of good faith.20
Here, petitioner himself admits the adverse nature of respondents possession with his
assertion that Macarios fraudulent acquisition of Dionisias share created a
constructive trust. In a constructive trust, there is neither a promise nor any fiduciary
relation to speak of and the so-called trustee (Macario) neither accepts any trust nor
intends holding the property for the beneficiary (Salvacion, Aspren, Isabel). The
relation of trustee and cestui que trust does not in fact exist, and the holding of a
constructive trust is for the trustee himself, and therefore, at all times

adverse.21 Prescription may supervene even if the trustee does not repudiate the
relationship.22
Then, too, respondents uninterrupted adverse possession for 55 years of 109 sq. m.
of Lot No. 552 was established. Macario occupied Dionisias share in 1945 although
his claim that Dionisia donated it to him in 1945 was only made in a 1948 affidavit. We
also agree with the CA that Macarios possession of Dionisias share was public and
adverse since his other co-owners, his three other sisters, also occupied portions of
Lot No. 552. Indeed, the 1977 sale made by Macario and his two daughters in favor of
his son Roger confirms the adverse nature of Macarios possession because said sale
of 225 sq. m.23 was an act of ownership over Macarios original share and Dionisias
share. In 1985, Roger also exercised an act of ownership when he sold 114 sq. m. to
Caridad Atienza. It was only in the year 2000, upon receipt of the summons to answer
petitioners complaint, that respondents peaceful possession of the remaining portion
(109 sq. m.) was interrupted. By then, however, extraordinary acquisitive prescription
has already set in in favor of respondents. That the RTC found Macarios 1948 affidavit
void is of no moment. Extraordinary prescription is unconcerned with Macarios title or
good faith. Accordingly, the RTC erred in ruling that Macario cannot acquire by
prescription the shares of Salvacion, Aspren, and Isabel, in Dionisias 114-sq. m. share
from Lot No. 552.
Moreover, the CA correctly dismissed petitioners complaint as an action for
reconveyance based on an implied or constructive trust prescribes in 10 years from the
time the right of action accrues.24 This is the other kind of prescription under the Civil
Code, called extinctive prescription, where rights and actions are lost by the lapse of
time.25 Petitioners action for recovery of possession having been filed 55 years after
Macario occupied Dionisias share, it is also barred by extinctive prescription. The CA
while condemning Macarios fraudulent act of depriving his three sisters of their shares
in Dionisias share, equally emphasized the fact that Macarios sisters wasted their
opportunity to question his acts.
WHEREFORE, we DENY the petition for review on certiorari for lack of merit
and AFFIRM the assailed Decision dated April 28, 2008 and Resolution dated July 22,
2008 of the Court of Appeals in CA-G.R. CV No. 87480.
No pronouncement as to costs.
SO ORDERED.

JUAN B. BANEZ, JR., Petitioner,

vs.
HON. CRISANTO C. CONCEPCION, IN HIS CAPACITY AS THE PRESIDING
JUDGE OF THE RTC-BULACAN, MALOLOS CITY, AND THE ESTATE OF THE
LATE RODRIGO GOMEZ, REPRESENTED BY ITS ADMINISTRATRIX, TSUI YUK
YING, Respondents.
DECISION
BERSAMIN, J.:
The petitioner has directly come to the Court via petition for certiorari1 filed on
September 4, 2003 to assail the orders dated March 24, 2003 (reversing an earlier
order issued on February 18, 2003 granting his motion to dismiss on the ground of the
action being already barred by prescription, and reinstating the action),2 April 21, 2003
(denying his motion for reconsideration),3and August 19, 2003 (denying his second
motion for reconsideration and ordering him to file his answer within 10 days from
notice despite the principal defendant not having been yet validly served with
summons and copy of the complaint),4 all issued by the Regional Trial Court (RTC),
Branch 12, in Malolos City in Civil Case No. 722-M-2002,5 an action for the recovery of
ownership and possession. He alleges that respondent Presiding Judge thereby acted
with grave abuse of discretion amounting to lack or excess of jurisdiction.
Antecedents
The present controversy started almost four decades ago when Leodegario B. Ramos
(Ramos), one of the defendants in Civil Case No. 722-M-2002, discovered that a
parcel of land with an area of 1,233 square meters, more or less, which was a portion
of a bigger tract of land with an area of 3,054 square meters, more or less, located in
Meycauayan, Bulacan that he had adjudicated solely to himself upon his mothers
death on November 16, 1982 had been earlier transferred by his mother to one
Ricardo Asuncion, who had, in turn, sold it to the late Rodrigo Gomez.
On February 1, 1990, Ramos, alleging that Gomez had induced him to sell the 1,233
square meters to Gomez on the understanding that Gomez would settle Ramos
obligation to three other persons, commenced in the RTC in Valenzuela an action
against Gomez, also known as Domingo Ng Lim, seeking the rescission of their
contract of sale and the payment of damages, docketed as Civil Case No. 3287-V-90
entitled Leodegario B. Ramos v. Rodrigo Gomez, a.k.a. Domingo Ng Lim.6
On October 9, 1990, before the Valenzuela RTC could decide Civil Case No. 3287-V90 on the merits, Ramos and Gomez entered into a compromise agreement.7 The RTC
approved their compromise agreement through its decision rendered on the same
date.8

The petitioner, being then the counsel of Ramos in Civil Case No. 3287-V-90, assisted
Ramos in entering into the compromise agreement "to finally terminate this case." The
terms and conditions of the compromise agreement were as follows:
COME NOW, the Parties, assisted by their respective counsels, and before this
Honorable Court, most respectfully submit this COMPROMISE AGREEMENT for
approval, as to finally terminate this case, the terms and conditions of which being as
follows:
1. That out of the total area of Three Thousand and Fifty Four (3,054) sq. m.,
more or less, covered by formerly O.C.T. No. P-2492 (M), Registry of Deeds
of Bulacan, known as Lot No. 6821, Cad-337 Lot 4020-E, Csd-04-001618-D,
and now by the Reconstituted Transfer Certificate of Title No. T-10179-P (M)
defendant shall cause survey of said property, at its own expense, to
segregate the area of One Thousand Two Hundred Thirty-Three, (1,233) sq.
m. more or less, to take along lines two (2) to three (3), then to four (4) and up
to five (5) of said plan, Csd-04-001618-D;
2. That upon completion of the technical survey and plan, defendant shall
cause the registration of the Deed of Absolute Sale executed by plaintiff over
the 1,233 sq. m. in his favor and that defendant shall deliver the survey and
plan pertaining to the 1,821 sq, m. to the plaintiff with both parties defraying
the cost of registration and titling over their respective shares;
3. That to carry out the foregoing, plaintiff shall entrust the Owners Duplicate
of said TCT No. T-10179-P (M), Registry of Deeds of Meycauayan, Bulacan,
to the defendant, upon approval of this COMPROMISE AGREEMENT by the
Court;
4. That upon the approval of this Compromise Agreement plaintiff shall
execute a Deed of Absolute Sale in favor of defendant over the 1,233 sq. m.
surveyed and segregated from the 1,821 sq. m. which should remain with the
plaintiff and to be titled in his name;
5. That plaintiff obligates himself to return his loan obligation to the defendant,
in the principal sum of P 80,000.00 plus P 20,000.00 for the use thereof, and
an additional sum of P 10,000.00 in the concept of attorneys fees, which
sums shall be guaranteed by a post-dated check, in the amount of P
110,000.00 in plaintiffs name with his prior endorsement, drawn and issued
by plaintiffs counsel, for a period of Sixty (60) days from October 9, 1990;
6. That in the event the check issued pursuant to paragraph 5 hereof, is
dishonored for any reason whatsoever, upon presentment for payment, then
this Compromise Agreement, shall be considered null and void and of no
effect whatsoever;

7. That upon faithful compliance with the terms and conditions of this
COMPROMISE AGREEMENT and the Decision based thereon, the parties
hereto shall have respectively waived, conceded and abandoned all claims
and rights of action of whatever kind or nature, against each other over the
subject property.
WHEREFORE, premises considered, the parties hereto hereby jointly and severally
pray before this Honorable Court to approve this COMPROMISE AGREEMENT and
thereupon render its Decision based thereon terminating the case.
One of the stipulations of the compromise agreement was for Ramos to execute a
deed of absolute sale in favor of Gomez respecting the parcel of land with an area of
1,233 square meters, and covered by Transfer Certificate of Title (TCT) No. T-13005
P(M) in the name of Ramos.9 Another stipulation was for the petitioner to issue postdated checks totaling P 110,000.00 to guarantee the payment by Ramos of his
monetary obligations towards Gomez as stated in the compromise agreement broken
down as follows: (a) P 80,000.00 as Ramos loan obligation to Gomez; (b) P 20,000.00
for the use of the loan; and (c) P 10,000.00 as attorneys fees. Of these amounts,
only P 80,000.00 was ultimately paid to Gomez, because the petitioners check dated
April 23, 1991 for the balance of P 30,000.00 was dishonored for insufficiency of funds.
Gomez meanwhile died on November 7, 1990. He was survived by his wife Tsui Yuk
Ying and their minor children (collectively to be referred to as the Estate of Gomez).
The Estate of Gomez sued Ramos and the petitioner for specific performance in the
RTC in Caloocan City to recover the balance of P 30,000.00 (Civil Case No. C-15750).
On February 28, 1994, however, Civil Case No. C-15750 was amicably settled through
a compromise agreement, whereby the petitioner directly bound himself to pay to the
Estate of Gomez P 10,000.00 on or before March 15, 1994; P 10,000.00 on or before
April 15, 1994; and P 10,000.00 on or before May 15, 1994.
The Estate of Gomez performed the obligations of Gomez under the first paragraph of
the compromise agreement of October 9, 1990 by causing the survey of the bigger
tract of land containing an area of 3,054 square meters, more or less, in order to
segregate the area of 1,233 square meters that should be transferred by Ramos to
Gomez in accordance with Ramos undertaking under the second paragraph of the
compromise agreement of October 9, 1990. But Ramos failed to cause the registration
of the deed of absolute sale pursuant to the second paragraph of the compromise
agreement of October 9, 1990 despite the Estate of Gomez having already complied
with Gomezs undertaking to deliver the approved survey plan and to shoulder the
expenses for that purpose. Nor did Ramos deliver to the Estate of Gomez the owners
duplicate copy of TCT No. T-10179 P(M) of the Registry of Deeds of Meycauayan,
Bulacan, as stipulated under the third paragraph of the compromise agreement of
October 9, 1990. Instead, Ramos and the petitioner caused to be registered the 1,233
square meter portion in Ramoss name under TCT No. T-13005-P(M) of the Registry of
Deeds of Meycauayan, Bulacan.

Accordingly, on July 6, 1995, the Estate of Gomez brought a complaint for specific
performance against Ramos and the petitioner in the RTC in Valenzuela (Civil Case
No. 4679-V-95)10 in order to recover the 1,233 square meter lot. However, the
Valenzuela RTC dismissed the complaint on April 1, 1996 upon the motion of Ramos
and the petitioner on the ground of improper venue because the objective was to
recover the ownership and possession of realty situated in Meycauayan, Bulacan, and
because the proper recourse was to enforce the judgment by compromise Agreement
rendered on October 9, 1990 through a motion for execution.
The Estate of Gomez appealed the order of dismissal to the Court of Appeals (CA),
which ruled on July 24, 2001 to affirm the Valenzuela RTC and to dismiss the appeal
(CA-G.R. CV No. 54231).
On September 20, 2002, the Estate of Gomez commenced Civil Case No. 722-M-2002
in the Valenzuela RTC, ostensibly to revive the judgment by compromise rendered on
October 9, 1990 in Civil Case No. 3287-V-90, praying that Ramos be ordered to
execute the deed of absolute sale covering the 1,233 square meter lot pursuant to the
fourth stipulation of the compromise agreement of October 9, 1990. The petitioner was
impleaded as a party-defendant because of his having guaranteed the performance by
Ramos of his obligation and for having actively participated in the transaction.
On January 8, 2003, the petitioner moved for the dismissal of Civil Case No. 722-M2002, alleging that the action was already barred by res judicata and by prescription;
that he was not a real party-in-interest; and that the amount he had guaranteed with
his personal check had already been paid by Ramos with his own money.11
Initially, on February 18, 2003,12 the RTC granted the petitioners motion to dismiss,
finding that the right of action had already prescribed due to more than 12 years having
elapsed from the approval of the compromise agreement on October 9, 1990, citing
Article 1143 (3) of the Civil Code (which provides a 10-year period within which a right
of action based upon a judgment must be brought from).
On March 24, 2003,13 however, the RTC reversed itself upon motion of the Estate of
Gomez and set aside its order of February 18, 2003. The RTC reinstated Civil Case
No. 722-M-2002, holding that the filing of the complaint for specific performance on
July 6, 1995 in the Valenzuela RTC (Civil Case No. 4679-V-95) had interrupted the
prescriptive period pursuant to Article 1155 of the Civil Code.
The petitioner sought reconsideration, but the RTC denied his motion for that purpose
on April 21, 2003.
On May 12, 2003, the petitioner filed a second motion for reconsideration, maintaining
that the Estate of Gomezs right of action had already prescribed; and that the
judgment by compromise of October 9, 1990 had already settled the entire controversy
between the parties.

On August 19, 2003,14 the RTC denied the second motion for reconsideration for lack
of merit.
Hence, this special civil action for certiorari commenced on September 4, 2003 directly
in this Court.
Issues
The petitioner insists that:
xxx the lower court acted with grave abuse of discretion, amounting to lack of, or in
excess of jurisdiction, when, after having correctly ordered the dismissal of the case
below, on the ground of prescription under Art. 1144, par. 3, of the Civil Code, it
reconsidered and set aside the same, on the factually baseless and legally untenable
Motion for Reconsideration of Private Respondent, insisting, with grave abuse of
discretion, if not bordering on ignorance of law, and too afraid to face reality, that it is
Art. 1155 of the same code, as invoked by Private Respondents, that applies, and
required herein petitioner to file his answer, despite petitioners first Motion for
Reconsideration, which it treated as a mere scrap of paper, yet, at the same [sic] again
it insisted that Article 1155 of the Civil Code should apply, and, thereafter when, with
like, if not greater grave abuse of discretion, amounting to lack, or in excess of
jurisdiction, it again denied petitioners Second Motion for Reconsideration for lack of
merit, and giving petitioner a non-extendible period of ten 10 days from notice, to file his
answer.15
In his reply to the Estate of Gomezs comment,16 the petitioner elucidated as follows:
1) Whether or not, the Honorable public respondent Judge gravely abused his
discretion, amounting to lack of, or in excess of jurisdiction, when, after ordered the
dismissal of Civil Case No. 722-M-2002, as prescription has set in, under Art. 1143 of
the Civil Code, he set aside and reconsidered his said Order, on motion of plaintiff, by
thereafter denied petitioners Motion for Reconsideration, and Second Motion for
Reconsideration, insisting, despite his being presumed to know the law, that the said
action is not barred by prescription, under Art. 1145 of the Civil Code;
2) Whether or not, the present pending action, Civil Case No. 722-M-2002, before
Branch 12 of the Regional Trial Court of Malolos, Bulacan, is barred, and should be
ordered be dismissed, on the ground of prescription, under the law and the rules, and
applicable jurisprudence.
3) Whether or not, the same action may be dismissed on other valid grounds.17
The petitioner submits that Civil Case No. 722-M-2002 was one for the revival of the
judgment upon a compromise agreement rendered in Civil Case No. 3287-V-90 that
attained finality on October 9, 1990; that considering that an action for revival must be
filed within 10 years from the date of finality, pursuant to Article 1144 of the Civil

Code,18 in relation to Section 6, Rule 39 of the Rules of Court,19 Civil Case No. 722-M2002 was already barred by prescription, having been filed beyond the 10-year
prescriptive period; that the RTC gravely abused its discretion in reinstating the
complaint despite prescription having already set in; that the dismissal of Civil Case
No. 722-M-2002 was proper also because the judgment had already been fully
satisfied; that the claim relative to the 1,233 square meter lot under the compromise
agreement had been waived, abandoned, or otherwise extinguished on account of the
failure of the Estate of Gomezs counsel to move for the issuance of a writ of
execution; and that the Estate of Gomez could not rely upon the pendency and effects
of the appeal from the action for specific performance after its dismissal had been
affirmed by the CA on grounds of improper venue, the plaintiffs lack of personality, and
improper remedy (due to the proper remedy being by execution of the judgment).
The Estate of Gomez countered that the filing on July 6, 1995 of the action for specific
performance in the RTC in Valenzuela stopped the running of the prescriptive period;
that the period commenced to run again after the CA dismissed that action on July 24,
2001; that the total elapsed period was only five years and 11 months; and that the
action for the revival of judgment filed on September 20, 2002 was within the period of
10 years to enforce a final and executory judgment by action.
Ruling
We dismiss the petition for certiorari.
The orders that the petitioner seeks to challenge and to annul are the orders denying
his motion to dismiss. It is settled, however, that an order denying a motion to dismiss,
being merely interlocutory, cannot be the basis of a petition for certiorari. An
interlocutory order is not the proper subject of a certiorari challenge by virtue of its not
terminating the proceedings in which it is issued. To allow such order to be the subject
of review by certiorari not only delays the administration of justice, but also unduly
burdens the courts.20
But a petition for certiorari may be filed to assail an interlocutory order if it is issued
without jurisdiction, or with excess of jurisdiction, or in grave abuse of discretion
amounting to lack or excess of jurisdiction. This is because as to such order there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law. Rule
65 of the Rules of Court expressly recognizes the exception by providing as follows:
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)
The exception does not apply to this challenge. The petitioner has not demonstrated
how the assailed orders could have been issued without jurisdiction, or with excess of
jurisdiction, or in grave abuse of discretion amounting to lack or excess of jurisdiction.
Nor has he convinced us that he had no plain, speedy, and adequate remedy in the
ordinary course of law. In fact and in law, he has, like filing his answer and going to
pre-trial and trial. In the end, should he still have the need to seek the review of the
decision of the RTC, he could also even appeal the denial of the motion to dismiss.
That, in reality, was his proper remedy in the ordinary course of law.
Yet another reason to dismiss the petition for certiorari exists. Although the Court, the
CA and the RTC have concurrence of jurisdiction to issue writs of certiorari, the
petitioner had no unrestrained freedom to choose which among the several courts
might his petition for certiorari be filed in. In other words, he must observe the
hierarchy of courts, the policy in relation to which has been explicitly defined in Section
4 of Rule 65 concerning the petitions for the extraordinary writs of certiorari, prohibition
and mandamus, to wit:
Section 4. When and where petition filed. - The petition shall be filed not later than
sixty (60) days from notice of the judgment, order or resolution. In case a motion for
reconsideration or new trial is timely filed, whether such motion is required or not, the
sixty (60) day period shall be counted from notice of the denial of the said motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions
of a lower court or of a corporation, board, officer or person, in the Regional Trial Court
exercising jurisdiction over the territorial area as defined by the Supreme Court. It may
also be filed in the Court of Appeals whether or not the same is in the aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its appellate jurisdiction.
If it involves the acts or omissions of a quasi-judicial agency, unless otherwise provided
by law or these rules, the petition shall be filed in and cognizable only by the Court of
Appeals.
No extension of time to file the petition shall be granted except for compelling reason
and in no case exceeding fifteen (15) days. (4a)21 (Emphasis supplied)
Accordingly, his direct filing of the petition for certiorari in this Court instead of in the CA
should be disallowed considering that he did not present in the petition any special and
compelling reasons to support his choice of this Court as the forum.
The Court must enjoin the observance of the policy on the hierarchy of courts, and now
affirms that the policy is not to be ignored without serious consequences. The
strictness of the policy is designed to shield the Court from having to deal with causes
that are also well within the competence of the lower courts, and thus leave time to the

Court to deal with the more fundamental and more essential tasks that the Constitution
has assigned to it. The Court may act on petitions for the extraordinary writs
of certiorari, prohibition and mandamus only when absolutely necessary or when
serious and important reasons exist to justify an exception to the policy. This was why
the Court stressed in Vergara, Sr. v. Suelto:22
xxx. The Supreme Court is a court of last resort, and must so remain if it is to
satisfactorily perform the functions assigned to it by the fundamental charter and
immemorial tradition. It cannot and should not be burdened with the task of dealing
with causes in the first instance. Its original jurisdiction to issue the so-called
extraordinary writs should be exercised only where absolutely necessary or where
serious and important reasons exist therefor. Hence, that jurisdiction should generally
be exercised relative to actions or proceedings before the Court of Appeals, or before
constitutional or other tribunals, bodies or agencies whose acts for some reason or
another are not controllable by the Court of Appeals. Where the issuance of an
extraordinary writ is also within the competence of the Court of Appeals or a Regional
Trial Court, it is in either of these courts that the specific action for the writs
procurement must be presented. This is and should continue to be the policy in this
regard, a policy that courts and lawyers must strictly observe. (Emphasis supplied)
In People v. Cuaresma,23 the Court has also amplified the need for strict adherence to
the policy of hierarchy of courts. There, noting "a growing tendency on the part of
litigants and lawyers to have their applications for the so-called extraordinary writs, and
sometimes even their appeals, passed upon and adjudicated directly and immediately
by the highest tribunal of the land," the Court has cautioned lawyers and litigants
against taking a direct resort to the highest tribunal, viz:
xxx. This Courts original jurisdiction to issue writs of certiorari (as well as prohibition,
mandamus, quo warranto, habeas corpus and injunction) is not exclusive. It is shared
by this Court with Regional Trial Courts x x x, which may issue the writ, enforceable in
any part of their respective regions. It is also shared by this Court, and by the Regional
Trial Court, with the Court of Appeals x x x, although prior to the effectivity of Batas
Pambansa Bilang 129 on August 14, 1981, the latter's competence to issue the
extraordinary writs was restricted to those "in aid of its appellate jurisdiction." This
concurrence of jurisdiction is not, however, to be taken as according to parties seeking
any of the writs an absolute, unrestrained freedom of choice of the court to which
application therefor will be directed. There is after all a hierarchy of courts. That
hierarchy is determinative of the venue of appeals, and should also serve as a general
determinant of the appropriate forum for petitions for the extraordinary writs. A
becoming regard for that judicial hierarchy most certainly indicates that petitions for the
issuance of extraordinary writs against first level ("inferior") courts should be filed with
the Regional Trial Court, and those against the latter, with the Court of Appeals. A
direct invocation of the Supreme Court's original jurisdiction to issue these writs should
be allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition. This is established policy. It is a policy that is
necessary to prevent inordinate demands upon the Courts time and attention which
are better devoted to those matters within its exclusive jurisdiction, and to prevent
further over-crowding of the Court's docket. Indeed, the removal of the restriction on

the jurisdiction of the Court of Appeals in this regard, supra resulting from the
deletion of the qualifying phrase, "in aid of its appellate jurisdiction" was evidently
intended precisely to relieve this Court pro tanto of the burden of dealing with
applications for the extraordinary writs which, but for the expansion of the Appellate
Court corresponding jurisdiction, would have had to be filed with it.
xxxx
The Court therefore closes this decision with the declaration for the information and
evidence of all concerned, that it will not only continue to enforce the policy, but will
require a more strict observance thereof. (Emphasis supplied)
There being no special, important or compelling reason that justified the direct filing of
the petition for certiorari in this Court in violation of the policy on hierarchy of courts, its
outright dismissal is unavoidable.
Still, even granting that the petition for certiorari might be directly filed in this Court, its
dismissal must also follow because its consideration and resolution would unavoidably
demand the consideration and evaluation of evidentiary matters. The Court is not a
trier of facts, and cannot accept the petition for certiorari for that reason.
Although commenced ostensibly for the recovery of possession and ownership of real
property, Civil Case No. 722-M-2002 was really an action to revive the judgment by
compromise dated October 9, 1990 because the ultimate outcome would be no other
than to order the execution of the judgment by compromise. Indeed, it has been held
that "there is no substantial difference between an action expressly called one for
revival of judgment and an action for recovery of property under a right adjudged under
and evidenced by a final judgment."24 In addition, the parties themselves have treated
the complaint in Civil Case No. 722-M-2002 as one for revival. Accordingly, the parties
should be fully heard on their respective claims like in any other independent
action.1wphi1
The petitioners defense of prescription to bar Civil Case No. 722-M-2002 presents
another evidentiary concern. Article 1144 of the Civil Code requires, indeed, that an
action to revive a judgment must be brought before it is barred by prescription, which
was ten years from the accrual of the right of action.25 It is clear, however, that such a
defense could not be determined in the hearing of the petitioners motion to dismiss
considering that the complaint did not show on its face that the period to bring the
action to revive had already lapsed. An allegation of prescription, as the Court put it in
Pineda v. Heirs of Eliseo Guevara,26 "can effectively be used in a motion to dismiss
only when the complaint on its face shows that indeed the action has already
prescribed, [o]therwise, the issue of prescription is one involving evidentiary matters
requiring a full blown trial on the merits and cannot be determined in a mere motion to
dismiss."
At any rate, the mere lapse of the period per se did not render the judgment stale
within the context of the law on prescription, for events that effectively suspended the

running of the period of limitation might have intervened. In other words, the Estate of
Gomez was not precluded from showing such events, if any. The Court recognized this
possibility of suspension in Lancita v. Magbanua:27
In computing the time limited for suing out of an execution, although there is authority
to the contrary, the general rule is that there should not be included the time when
execution is stayed, either by agreement of the parties for a definite time, by injunction,
by the taking of an appeal or writ of error so as to operate as a supersedeas, by the
death of a party or otherwise. Any interruption or delay occasioned by the debtor will
extend the time within which the writ may be issued without scire facias.
Verily, the need to prove the existence or non-existence of significant matters, like
supervening events, in order to show either that Civil Case No. 722-M-2002 was
batTed by prescription or not was present and undeniable. Moreover, the petitioner
himself raised factual issues in his motion to dismiss, like his averment of full payment
or discharge of the obligation of Ramos and the waiver or abandonment of rights under
the compromise agreement. The proof thereon cannot be received
in certiorari proceedings before the Court, but should be established in the RTC.
WHEREFORE, the Court DISMISSES the petition for certiorari; and DIRECTS the
petitioner to pay the cost of suit.
SO ORDERED

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
REMMAN ENTERPRISES, INC., represented by RONNIE P.
INOCENCIO, Respondent.
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of
Court seeking to annul and set aside the Decision2 dated November 10, 2011 of the
Court of Appeals (CA) in CA-G.R. CV No. 90503. The CA affirmed the Decision3 dated
May 16, 2007 of the Regional Trial Court (RTC) of Pasig City, Branch 69, in Land
Registration Case No. N-11465.
The Facts

On December 3, 2001, Remman Enterprises, Inc. (respondent), filed an

application4 with the RTC for judicial confirmation of title over two parcels of land
situated in Barangay Napindan, Taguig, Metro Manila, identified as Lot Nos. 3068 and
3077, Mcadm-590-D, Taguig Cadastre, with an area of 29,945 square meters and
20,357 sq m, respectively.

owned and possessed by Veronica Jaime (Jaime), who cultivated and planted different
kinds of crops in the said lots, through her caretaker and hired farmers, since 1943.
Sometime in 1975, Jaime sold the said parcels of land to Salvador and Mijares, who
continued to cultivate the lots until the same were purchased by the respondent in
1989.

On December 13, 2001, the RTC issued the Order5 finding the respondents
application for registration sufficient in form and substance and setting it for initial
hearing on February 21, 2002. The scheduled initial hearing was later reset to May 30,
2002.6 The Notice of Initial Hearing was published in the Official Gazette, April 1, 2002
issue, Volume 98, No. 13, pages 1631-16337 and in the March 21, 2002 issue of
Peoples Balita,8 a newspaper of general circulation in the Philippines. The Notice of
Initial Hearing was likewise posted in a conspicuous place on Lot Nos. 3068 and 3077,
as well as in a conspicuous place on the bulletin board of the City hall of Taguig, Metro
Manila.9

The respondent likewise alleged that the subject properties are within the alienable
and disposable lands of the public domain, as evidenced by the certifications issued by
the Department of Environment and Natural Resources (DENR).

On May 30, 2002, when the RTC called the case for initial hearing, only the Laguna
Lake Development Authority (LLDA) appeared as oppositor. Hence, the RTC issued an
order of general default except LLDA, which was given 15 days to submit its
comment/opposition to the respondents application for registration.10
On June 4, 2002, the LLDA filed its Opposition11 to the respondents application for
registration, asserting that Lot Nos. 3068 and 3077 are not part of the alienable and
disposable lands of the public domain. On the other hand, the Republic of the
Philippines (petitioner), on July 16, 2002, likewise filed its Opposition,12 alleging that
the respondent failed to prove that it and its predecessors-in-interest have been in
open, continuous, exclusive, and notorious possession of the subject parcels of land
since June 12, 1945 or earlier.
Trial on the merits of the respondents application ensued thereafter.
The respondent presented four witnesses: Teresita Villaroya, the respondents
corporate secretary; Ronnie Inocencio, an employee of the respondent and the one
authorized by it to file the application for registration with the RTC; Cenon Cerquena
(Cerquena), the caretaker of the subject properties since 1957; and Engineer Mariano
Flotildes (Engr. Flotildes), a geodetic engineer hired by the respondent to conduct a
topographic survey of the subject properties.
For its part, the LLDA presented the testimonies of Engineers Ramon Magalonga
(Engr. Magalonga) and Christopher A. Pedrezuela (Engr. Pedrezuela), who are both
geodetic engineers employed by the LLDA.
Essentially, the testimonies of the respondents witnesses showed that the respondent
and its predecessors-in-interest have been in open, continuous, exclusive, and
notorious possession of the said parcels of land long before June 12, 1945. The
respondent purchased Lot Nos. 3068 and 3077 from Conrado Salvador (Salvador) and
Bella Mijares (Mijares), respectively, in 1989. The subject properties were originally

In support of its application, the respondent, inter alia, presented the following
documents: (1) Deed of Absolute Sale dated August 28, 1989 executed by Salvador
and Mijares in favor of the respondent;13 (2) survey plans of the subject properties;14 (3)
technical descriptions of the subject properties;15 (4) Geodetic Engineers
Certificate;16(5) tax declarations of Lot Nos. 3068 and 3077 for 2002;17 and (6)
certifications dated December 17, 2002, issued by Corazon D. Calamno (Calamno),
Senior Forest Management Specialist of the DENR, attesting that Lot Nos. 3068 and
3077 form part of the alienable and disposable lands of the public domain.18
On the other hand, the LLDA alleged that the respondents application for registration
should be denied since the subject parcels of land are not part of the alienable and
disposable lands of the public domain; it pointed out that pursuant to Section 41(11) of
Republic Act No. 485019 (R.A. No. 4850), lands, surrounding the Laguna de Bay,
located at and below the reglementary elevation of 12.50 meters are public lands
which form part of the bed of the said lake. Engr. Magalonga, testifying for the
oppositor LLDA, claimed that, upon preliminary evaluation of the subject properties,
based on the topographic map of Taguig, which was prepared using an aerial survey
conducted by the then Department of National Defense-Bureau of Coast in April 1966,
he found out that the elevations of Lot Nos. 3068 and 3077 are below 12.50 m. That
upon actual area verification of the subject properties on September 25, 2002, Engr.
Magalonga confirmed that the elevations of the subject properties range from 11.33 m
to 11.77 m.
On rebuttal, the respondent presented Engr. Flotildes, who claimed that, based on the
actual topographic survey of the subject properties he conducted upon the request of
the respondent, the elevations of the subject properties, contrary to LLDAs claim, are
above 12.50 m. Particularly, Engr. Flotildes claimed that Lot No. 3068 has an elevation
ranging from 12.60 m to 15 m while the elevation of Lot No. 3077 ranges from 12.60 m
to 14.80 m.
The RTC Ruling
On May 16, 2007, the RTC rendered a Decision,20 which granted the respondents
application for registration of title to the subject properties, viz:
WHEREFORE, premises considered, judgment is rendered confirming the title of the
applicant Remman Enterprises Incorporated over a parcels of land [sic] consisting of

29,945 square meters (Lot 3068) and 20,357 (Lot 3077) both situated in Brgy.
Napindan, Taguig, Taguig,
Metro Manila more particularly described in the Technical Descriptions Ap-04-003103
and Swo-00-001769 respectively and ordering their registration under the Property
Registration Decree in the name of Remman Enterprises Incorporated.
SO ORDERED.21
The RTC found that the respondent was able to prove that the subject properties form
part of the alienable and disposable lands of the public domain. The RTC opined that
the elevations of the subject properties are very much higher than the reglementary
elevation of 12.50 m and, thus, not part of the bed of Laguna Lake. The RTC pointed
out that LLDAs claim that the elevation of the subject properties is below 12.50 m is
hearsay since the same was merely based on the topographic map that was prepared
using an aerial survey on March 2, 1966; that nobody was presented to prove that an
aerial survey was indeed conducted on March 2, 1966 for purposes of gathering data
for the preparation of the topographic map.
Further, the RTC posited that the elevation of a parcel of land does not always remain
the same; that the elevations of the subject properties may have already changed
since 1966 when the supposed aerial survey, from which the topographic map used by
LLDA was based, was conducted. The RTC likewise faulted the method used by Engr.
Magalonga in measuring the elevations of the subject properties, pointing out that:
Further, in finding that the elevation of the subject lots are below 12.5 meters,
oppositors witness merely compared their elevation to the elevation of the particular
portion of the lake dike which he used as his [benchmark] or reference point in
determining the elevation of the subject lots. Also, the elevation of the said portion of
the lake dike that was then under the construction by FF Cruz was allegedly 12.79
meters and after finding that the elevation of the subject lots are lower than the said
[benchmark] or reference point, said witness suddenly jumped to a conclusion that the
elevation was below 12.5 meters. x x x.
Moreover, the finding of LLDAs witness was based on hearsay as said witness
admitted that it was DPWH or the FF Cruz who determined the elevation of the portion
of the lake dike which he used as the [benchmark] or reference point in determining
the elevation of the subject lots and that he has no personal knowledge as to how the
DPWH and FF Cruz determined the elevation of the said [benchmark] or reference
point and he only learn[ed] that its elevation is 12.79 meters from the information he
got from FF Cruz.22
Even supposing that the elevations of the subject properties are indeed below 12.50
m, the RTC opined that the same could not be considered part of the bed of Laguna
Lake. The RTC held that, under Section 41(11) of R.A. No. 4850, Laguna Lake extends
only to those areas that can be covered by the lake water when it is at the average
annual maximum lake level of 12.50 m. Hence, the RTC averred, only those parcels of

land that are adjacent to and near the shoreline of Laguna Lake form part of its bed
and not those that are already far from it, which could not be reached by the lake
water. The RTC pointed out that the subject properties are more than a kilometer away
from the shoreline of Laguna Lake; that they are dry and waterless even when the
waters of Laguna Lake is at its maximum level. The RTC likewise found that the
respondent was able to prove that it and its predecessors-in-interest have been in
open, continuous, exclusive, and notorious possession of the subject properties as
early as 1943.
The petitioner appealed the RTC Decision dated May 16, 2007 to the CA.
The CA Ruling
On November 10, 2011, the CA, by way of the assailed Decision,23 affirmed the RTC
Decision dated May 16, 2007. The CA found that the respondent was able to establish
that the subject properties are part of the alienable and disposable lands of the public
domain; that the same are not part of the bed of Laguna Lake, as claimed by the
petitioner. Thus:
The evidence submitted by the appellee is sufficient to warrant registration of the
subject lands in its name. Appellees witness Engr. Mariano Flotildes, who conducted
an actual area verification of the subject lots, ably proved that the elevation of the
lowest portion of Lot No. 3068 is 12.6 meters and the elevation of its highest portion is
15 meters. As to the other lot, it was found [out] that the elevation of the lowest portion
of Lot No. 3077 is also 12.6 meters and the elevation of its highest portion is 15
meters. Said elevations are higher than the reglementary elevation of 12.5 meters as
provided for under paragraph 11, Section 41 of R.A. No. 4850, as amended.
In opposing the instant application for registration, appellant relies merely on the
Topographic Map dated March 2, 1966, prepared by Commodore Pathfinder, which
allegedly shows that the subject parcels of land are so situated in the submerge[d]
[lake water] of Laguna Lake. The said data was gathered through aerial photography
over the area of Taguig conducted on March 2, 1966. However, nobody testified on the
due execution and authenticity of the said document. As regards the testimony of the
witness for LLDA, Engr. Ramon Magalonga, that the subject parcels of land are below
the 12.5 meter elevation, the same can be considered inaccurate aside from being
hearsay considering his admission that his findings were based merely on the
evaluation conducted by DPWH and FF Cruz. x x x.24 (Citations omitted)
The CA likewise pointed out that the respondent was able to present certifications
issued by the DENR, attesting that the subject properties form part of the alienable and
disposable lands of the public domain, which was not disputed by the petitioner. The
CA further ruled that the respondent was able to prove, through the testimonies of its
witnesses, that it and its predecessors-in-interest have been in open, continuous,
exclusive, and notorious possession of the subject properties prior to June 12, 1945.
Hence, the instant petition.

The Issue
The sole issue to be resolved by the Court is whether the CA erred in affirming the
RTC Decision dated May 16, 2007, which granted the application for registration filed
by the respondent.

The respondent filed its application for registration of title to the subject properties
under Section 14(1) of Presidential Decree (P.D.) No. 152927, which provides that:
Sec. 14. Who may apply. The following persons may file in the proper Court of First
Instance an application for registration of title to land, whether personally or through
their duly authorized representatives:

The Courts Ruling

The petition is meritorious.
The petitioner maintains that the lower courts erred in granting the respondents
application for registration since the subject properties do not form part of the alienable
and disposable lands of the public domain. The petitioner insists that the elevations of
the subject properties are below the reglementary level of 12.50 m and, pursuant to
Section 41(11) of R.A. No. 4850, are considered part of the bed of Laguna Lake.
That the elevations of the subject properties are above the reglementary level of 12.50
m is a finding of fact by the lower courts, which this Court, generally may not disregard.
It is a long-standing policy of this Court that the findings of facts of the RTC which were
adopted and affirmed by the CA are generally deemed conclusive and binding. This
Court is not a trier of facts and will not disturb the factual findings of the lower courts
unless there are substantial reasons for doing so.25
That the subject properties are not part of the bed of Laguna Lake, however, does not
necessarily mean that they already form part of the alienable and disposable lands of
the public domain. It is still incumbent upon the respondent to prove, with well-nigh
incontrovertible evidence, that the subject properties are indeed part of the alienable
and disposable lands of the public domain. While deference is due to the lower courts
finding that the elevations of the subject properties are above the reglementary level of
12.50 m and, hence, no longer part of the bed of Laguna Lake pursuant to Section
41(11) of R.A. No. 4850, the Court nevertheless finds that the respondent failed to
substantiate its entitlement to registration of title to the subject properties.
"Under the Regalian Doctrine, which is embodied in our Constitution, all lands of the
public domain belong to the State, which is the source of any asserted right to any
ownership of land. All lands not appearing to be clearly within private ownership are
presumed to belong to the State. Accordingly, public lands not shown to have been
reclassified or released as alienable agricultural land, or alienated to a private person
by the State, remain part of the inalienable public domain. The burden of proof in
overcoming the presumption of State ownership of the lands of the public domain is on
the person applying for registration, who must prove that the land subject of the
application is alienable or disposable. To overcome this presumption, incontrovertible
evidence must be presented to establish that the land subject of the application is
alienable or disposable."26

(1) Those who by themselves or through their predecessors-in interest have been in
open, continuous, exclusive and notorious possession and occupation of alienable and
disposable lands of the public domain under a bona fide claim of ownership since June
12, 1945, or earlier.
xxxx
Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or
incomplete titles to public land acquired under Section 48(b) of Commonwealth Act
(C.A.) No. 141, or the Public Land Act, as amended by P.D. No. 1073.28 Under Section
14(1) of P.D. No. 1529, applicants for registration of title must sufficiently establish:
first, that the subject land forms part of the disposable and alienable lands of the public
domain; second, that the applicant and his predecessors-in-interest have been in
open, continuous, exclusive, and notorious possession and occupation of the same;
and third, that it is under a bona fide claim of ownership since June 12, 1945, or
earlier.29
The first requirement was not satisfied in this case. To prove that the subject property
forms part of the alienable and disposable lands of the public domain, the respondent
presented two certifications30 issued by Calamno, attesting that Lot Nos. 3068 and
3077 form part of the alienable and disposable lands of the public domain "under
Project No. 27-B of Taguig, Metro Manila as per LC Map 2623, approved on January 3,
1968."
However, the said certifications presented by the respondent are insufficient to prove
that the subject properties are alienable and disposable. In Republic of the Philippines
v. T.A.N. Properties, Inc.,31 the Court clarified that, in addition to the certification issued
by the proper government agency that a parcel of land is alienable and disposable,
applicants for land registration must prove that the DENR Secretary had approved the
land classification and released the land of public domain as alienable and disposable.
They must present a copy of the original classification approved by the DENR
Secretary and certified as true copy by the legal custodian of the records. Thus:
Further, it is not enough for the PENRO or CENRO to certify that a land is alienable
and disposable. The applicant for land registration must prove that the DENR
Secretary had approved the land classification and released the land of the public
domain as alienable and disposable, and that the land subject of the application for
registration falls within the approved area per verification through survey by the
PENRO or CENRO. In addition, the applicant for land registration must present a copy
of the original classification approved by the DENR Secretary and certified as a true

copy by the legal custodian of the official records. These facts must be established to
prove that the land is alienable and disposable. Respondent failed to do so because
the certifications presented by respondent do not, by themselves, prove that the land is
alienable and disposable.32 (Emphasis ours)
In Republic v. Roche,33 the Court deemed it appropriate to reiterate the ruling in T.A.N.
Properties, viz:
Respecting the third requirement, the applicant bears the burden of proving the status
of the land. In this connection, the Court has held that he must present a certificate of
land classification status issued by the Community Environment and Natural
Resources Office (CENRO) or the Provincial Environment and Natural Resources
Office (PENRO) of the DENR. He must also prove that the DENR Secretary had
approved the land classification and released the land as alienable and disposable,
and that it is within the approved area per verification through survey by the CENRO or
PENRO. Further, the applicant must present a copy of the original classification
approved by the DENR Secretary and certified as true copy by the legal custodian of
the official records. These facts must be established by the applicant to prove that the
land is alienable and disposable.
Here, Roche did not present evidence that the land she applied for has been classified
as alienable or disposable land of the public domain. She submitted only the survey
map and technical description of the land which bears no information regarding the
lands classification. She did not bother to establish the status of the land by any
certification from the appropriate government agency. Thus, it cannot be said that she
complied with all requisites for registration of title under Section 14(1) of P.D.
1529.34 (Citations omitted and emphasis ours)
The DENR certifications that were presented by the respondent in support of its
application for registration are thus not sufficient to prove that the subject properties
are indeed classified by the DENR Secretary as alienable and disposable. It is still
imperative for the respondent to present a copy of the original classification approved
by the DENR Secretary, which must be certified by the legal custodian thereof as a
true copy. Accordingly, the lower courts erred in granting the application for registration
in spite of the failure of the respondent to prove by well-nigh incontrovertible evidence
that the subject properties are alienable and disposable.
Nevertheless, the respondent claims that the Courts ruling in T.A.N. Properties, which
was promulgated on June 26, 2008, must be applied prospectively, asserting that
decisions of this Court form part of the law of the land and, pursuant to Article 4 of the
Civil Code, laws shall have no retroactive effect. The respondent points out that its
application for registration of title to the subject properties was filed and was granted
by the RTC prior to the Courts promulgation of its ruling in T.A.N. Properties.
Accordingly, that it failed to present a copy of the original classification covering the
subject properties approved by the DENR Secretary and certified by the legal
custodian thereof as a true copy, the respondent claims, would not warrant the denial
of its application for registration.

The Court does not agree.

Notwithstanding that the respondents application for registration was filed and granted
by RTC prior to the Courts ruling in T.A.N. Properties, the pronouncements in that
case may be applied to the present case; it is not antithetical to the rule of nonretroactivity of laws pursuant to Article 4 of the Civil Code. It is elementary that the
interpretation of a law by this Court constitutes part of that law from the date it was
originally passed, since this Courts construction merely establishes the
contemporaneous legislative intent that the interpreted law carried into effect.35 "Such
judicial doctrine does not amount to the passage of a new law, but consists merely of a
construction or interpretation of a pre-existing one."36
Verily, the ruling in T.A.N. Properties was applied by the Court in subsequent cases
notwithstanding that the applications for registration were filed and granted by the
lower courts prior to the promulgation of T.A.N. Properties.
In Republic v. Medida,37 the application for registration of the subject properties therein
was filed on October 22, 2004 and was granted by the trial court on June 21, 2006.
Similarly, in Republic v. Jaralve,38 the application for registration of the subject property
therein was filed on October 22, 1996 and was granted by the trial court on November
15, 2002. In the foregoing cases, notwithstanding that the applications for registration
were filed and granted by the trial courts prior to the promulgation of T.A.N. Properties,
this Court applied the pronouncements in T.A.N. Properties and denied the
applications for registration on the ground, inter alia, that the applicants therein failed
to present a copy of the original classification approved by the DENR Secretary and
certified by the legal custodian thereof as a true copy.
Anent the second and third requirements, the Court finds that the respondent failed to
present sufficient evidence to prove that it and its predecessors-in-interest have been
in open, continuous, exclusive, and notorious possession and occupation of the
subject properties since June 12, 1945, or earlier.
To prove that it and its predecessors-in-interest have been in possession and
occupation of the subject properties since 1943, the respondent presented the
testimony of Cerquena. Cerquena testified that the subject properties were originally
owned by Jaime who supposedly possessed and cultivated the same since 1943; that
sometime in 1975, Jaime sold the subject properties to Salvador and Mijares who, in
turn, sold the same to the respondent in 1989.
The foregoing are but unsubstantiated and self-serving assertions of the possession
and occupation of the subject properties by the respondent and its predecessors-ininterest; they do not constitute the well-nigh incontrovertible evidence of possession
and occupation of the subject properties required by Section 14(1) of P.D. No. 1529.
Indeed, other than the testimony of Cerquena, the respondent failed to present any
other evidence to prove the character of the possession and occupation by it and its
predecessors-in-interest of the subject properties.

For purposes of land registration under Section 14(1) of P.D. No. 1529, proof of
specific acts of ownership must be presented to substantiate the claim of open,
continuous, exclusive, and notorious possession and occupation of the land subject of
the application. Applicants for land registration cannot just offer general statements
which are mere conclusions of law rather than factual evidence of possession. Actual
possession consists in the manifestation of acts of dominion over it of such a nature as
a party would actually exercise over his own property.39
Although Cerquena testified that the respondent and its predecessors-in-interest
cultivated the subject properties, by planting different crops thereon, his testimony is
bereft of any specificity as to the nature of such cultivation as to warrant the conclusion
that they have been indeed in possession and occupation of the subject properties in
the manner required by law. There was no showing as to the number of crops that are
planted in the subject properties or to the volume of the produce harvested from the
crops supposedly planted thereon.
Further, assuming ex gratia argumenti that the respondent and its predecessors-ininterest have indeed planted crops on the subject properties, it does not necessarily
follow that the subject properties have been possessed and occupied by them in the
manner contemplated by law. The supposed planting of crops in the subject properties
may only have amounted to mere casual cultivation, which is not the possession and
occupation required by law.
"A mere casual cultivation of portions of the land by the claimant does not constitute
possession under claim of ownership. For him, possession is not exclusive and
notorious so as to give rise to a presumptive grant from the state. The possession of
public land, however long the period thereof may have extended, never confers title
thereto upon the possessor because the statute of limitations with regard to public land
does not operate against the state, unless the occupant can prove possession and
occupation of the same under claim of ownership for the required number of years."40
Further, the Court notes that the tax declarations over the subject properties presented
by the respondent were only for 2002. The respondent failed to explain why, despite its
claim that it acquired the subject properties as early as 1989, and that its
predecessors-in-interest have been in possession of the subject property since 1943, it
was only in 2002 that it started to declare the same for purposes of taxation. "While tax
declarations are not conclusive evidence of ownership, they constitute proof of claim of
ownership."41 That the subject properties were declared for taxation purposes only in
2002 gives rise to the presumption that the respondent claimed ownership or
possession of the subject properties starting that year. Likewise, no improvement or
plantings were declared or noted in the said tax declarations. This fact belies the claim
that the respondent and its predecessors-in-interest, contrary to Cerquena's testimony,
have been in possession and occupation of the subject properties in the manner
required by law.
Having failed to prove that the subject properties form part of the alienable and
disposable lands of the public domain and that it and its predecessors-in-interest have

been in open, continuous, exclusive, and notorious possession and occupation of the
same since June 12, 1945, or earlier, the respondent's application for registration
should be denied.1wphi1
WHEREFORE, in consideration of the foregoing disquisitions, the instant petition is
GRANTED. The Decision dated November 10, 2011 of the Court of Appeals in CAG.R. CV No. 90503, which affirmed the Decision dated May 16, 2007 of the Regional
Trial Court of Pasig City, Branch 69, in Land Registration Case No. N-11465 is hereby
REVERSED and SET ASIDE. The Application for Registration of Remman Enterprises,
Inc. in Land Registration Case No. N-11465 is DENIED for lack of merit.
SO ORDERED.

G.R. No. 204926

December 3, 2014

ANACLETO C. MANGASER, represented by his Attorney-in-fact EUSTAQUIO

DUGENIA, Petitioner,
vs.
DIONISIO UGAY, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the June 13,
2012 Decision1 and the December 5, 2012 Resolution2 of the Court of Appeals (CA) in
CA-G.R. SP No. 122153, entitled "Dionisio Ugay v. Anacleto C. Mangaser, represented
by his Attorney-in-fact Eustaquio Dugenia, "a case of forcible entry and damages.
The Facts
On October 30, 2007, petitioner Anacleto Mangaser, represented by his attorney-infact, Eustaquio Dugenia (petitioner), filed a complaint for Forcible Entry with Damages
against respondent Dionisio Ugay (respondent) before the Municipal Trial Court of
Caba, La Union (MTC). In his complaint, petitioner alleged that he was the registered
owner and possessor of a parcel of land situated in Santiago Sur, Caba, La Union, with
an area of 10,632 square meters and covered by OCT No. RP-174 (FP-13 787) and
Tax Declaration No. 014-00707; that on October 31, 2006, petitioner, discovered that
respondent stealthy intruded and occupied a portion of his property by constructing a
residential house thereon without his knowledge and consent; that he referred the
matter to the Office of Lupong Tagapamayapa for conciliation, but no settlement was
reached, hence, a certification to file action was issued by the Lupon; and that demand
letters were sent to respondent but he still refused to vacate the premises, thus, he
was constrained to seek judicial remedy.3
Respondent denied the material allegations of the complaint and put up the following
defenses, to wit: that he had been a resident of Samara, Aringay, La Union, since birth
and when he reached the age of reason, he started occupying a parcel of land in that
place then known as Sta. Lucia, Aringay, La Union; that years later, this parcel of land
was designated as part of Santiago Sur, Caba, La Union due to a survey made by the
government; that he introduced more improvements on the property by cultivating the
land, and in March 2006, he put up a "bahay kubo"; that in October 2006, he installed
a fence made of "bolo" to secure the property; that in installing the fence, he was
guided by the concrete monuments which he knew to be indicators of the boundaries
of petitioner's property; that while he could not locate some of the monuments, he

based the boundaries on his recollection since he was around when these were
installed; that he knew the boundaries of petitioner's property because he knew the
extent of the "iron mining" activities done by a company on the said property; that
petitioner was never in actual possession of the property occupied by him, and it was
only on October 31, 2006 when he discovered the al legccl intrusion; that it was not
correct to say that he refused to vacate and surrender the premises despite receipt of
the demand letters because in his letter-reply, he assured petitioner that he would
voluntarily vacate the premises if he would only be shown to have intruded into
petitioner's titled lot after the boundaries were pointed out to him; and that instead of
shmving the boundaries to him, petitioner filed an action for forcible entry before the
MTC.4
MTC Ruling
On April 26, 2011, the MTC ruled in favor of respondent. It stated that petitioner failed
to adduce any evidence to prove that the lot occupied by respondent was within his lot
titled under OCT No. RP-174 (13 789). The MTC opined that petitioner could have
presented a relocation survey, which would have pinpointed the exact location of the
house and fence put up by respondent, and resolved the issue once and for all.6 It also
explained that petitioner failed to prove his prior physical possession of the subject
property. The OCT No. RP-174(13789) registered under petitioner's name and the Tax
Declaration were not proof of actual possession of the property. The dispositive portion
of which reads:
WHEREFORE, the plaintiff (petitioner) having failed to establish his case by
preponderance of evidence, the complaint is hereby DISMISSED.7
RTC Ruling
Aggrieved, petitioner appealed to the Regional Trial Court of Bauang, La Union (RTC)
and the case was raffled to Branch 33.
In its August 23, 2011 Decision,8 the RTC reversed the MTC decision and ruled in favor
of petitioner. It relied on the cases of Barba v. Court of Appeals9 and Nunez v. SLTEAS
Phoenix Solutions, Inc.,10 which held that in ejectment cases, possession of the land
did not only mean actual or physical possession but also included the subject of the
thing to the action of one's will or by the proper acts and legal formalities established
for acquiring such right. The RTC stated that petitioner had clearly shown his
possession of the property as evidenced by his OCT No. RP-174(13 789) issued in
March 1987 and tax declaration, dating back as early as 1995.11 It added that the
boundaries of the property were clearly indicated in the title, thus, there was no need to
conduct a survey. As the owner, petitioner knew the exact metes and bounds of his
property so that when respondent intruded stealthily, he filed the subject suit.12 The
dispositive portion of the RTC decision reads:
WHEREFORE, after a thorough perusal of the facts and evidence in this case, this
Court reverses the decision of the MTC, Caba, La Union, dated April 26, 2011 and

rules in favor of plaintiffappellant (petitioner) and against defendant-appellee

(respondent), ordering the latter and all other persons claiming rights under him to:
1. VACATE the portion of the subject property encroached by him;
2. SURRENDER actual physical possession of the subject portion peacefully
to plaintiff-appellant;

This Court, after a meticulous study of the arguments set forth in the Motion for
Reconsideration filed by respondent, finds no cogent reason to revise, amend, much
less reverse, the assailed Decision dated June 13, 2012. The Motion for
Reconsideration is, thus, DENIED
SO ORDERED.21
Hence, this petition, anchored on the following

3. REMOVE all the improvements he introduced therein;

STATEMENT OF ISSUES
4. PAY attorney's fees in the amount Php20,000.00 to plaintiff-appellant, and
pay the cost of suit.
SO ORDERED.13
Undaunted, respondent appealed to the CA.
CA Ruling
The CA reversed and set aside the decision of the RTC. Citing Quizon v. Juan,14 it
emphasized that petitioner must allege and prove that he was in prior physical
possession of the property in dispute. The word "possession," as used in forcible entry
and unlawful detainer cases, meant nothing more than physical possession, not legal
possession in the sense contemplated in civil law. The CA wrote that petitioner was not
in physical possession despite the presentation of the OCT No. RP-174(13789) and
his tax declarations.15 It reiterated that when the law would speak of possession in
forcible entry cases, it is prior physical possession or possession de facto, as
distinguished from possession de Jure. What petitioner proved was legal possession,
not his prior physical possession. Furthermore, the CA stated that the RTC misquoted
Nunez v. SLTEAS Pheonix Solutions16 by giving the wrong notion of what kind of
possession was contemplated in forcible entry cases. In other words, physical
possession was the crux in forcible entry, not possession that stemmed upon
ownership.17 The dispositive portion of the assailed decision reads:
WHEREFORE, premises considered, the Petition for Review is GRANTED,
accordingly, the Decision dated August 23, 2011 and Order dated October 25, 2011, of
the RTC Branch 33, Bauang, La Union in Civil Case No. 2029-BG are REVERSED
and SET ASIDE. The Decision of the MTC dated April 26, 2011 is hereby
REINSTATED.
SO ORDERED.18
Petitioner filed a motion for reconsideration,19 dated July 6, 2012, but it was
subsequently denied by the CA in a Resolution,20 dated December 5, 2012. It reads:

I
WHETHER OR NOT THE COURT OF APPEALS FAILED TO CONSIDER THE
EVIDENCE OF OWNERSHIP OF PETITIONER WHICH MAY ESTABLISH PRIOR
POSSESSION OVER THE PROPERTY BY HEREIN PETITIONER.
II
WHETHER OR NOT THE RESOLUTION DATED DECEMBER 5, 2012 OF THE
COURT OF APPEALS, FORMER SPECIAL FOURTH DIVISION, DENYING THE
MOTION FOR RECONSIDERATION IS VALID. 22
Petitioner argues that in ejectment cases, possession of the land does not only mean
actual or physical possession or occupation but also by the fact that a land is subject to
the action of one's will or by proper acts and legal formalities established for acquiring
such right; that the CA should have considered OCT No. RP-174(13789) his tax
declaration as proofs of prior physical possession over the property; and that the
issuance of the same are considered to by law as proper acts and legal formalities
established for acquiring such right. Petitioner cited Tolentino, as one of the authors
and experts in Civil law, stating that the "proper acts and formalities" refer to juridical
acts, or the acquisition of possession by sufficient title, inter vivas or mortis causa,
onerous or lucrative. These are the acts which the law gives the force of acts of
possession.
Petitioner also avers that the December 5, 2012 CA Resolution was not valid as it did
not state the legal basis required by the Constitution.
On May 28, 2013, respondent filed his Comment23 before this Court. He stated that the
issues raised and the arguments presented by petitioner have been thoroughly
resolved and ruled upon by the CA. The appellate court did not err in reversing the
RTC decision because petitioner was never in prior physical possession of the
property in dispute. Respondent asserts that he has been in prior, actual, continuous,
public, notorious, exclusive and peaceful possession in the concept of an owner of the
property in dispute.24

On March 28, 2014, petitioner filed his Reply,25 reiterating the case of Nunez v.
SLTEAS Phoenix Solutions, Inc.,26where a party was able to demonstrate that it had
exercised acts of ownership over the property by having it titled in its name and by
paying real property taxes on it. Petitioner also laments the wrongful insistence of
respondent that his possession over the property was one in the concept of an owner.
To petitioner's mind, respondent failed to adequately adduce evidence to show proof of
his right to possess the property when his possession came under attack with the filing
of the subject case.27
The Court's Ruling
The Court finds the petition meritorious.
For a forcible entry suit to prosper, the plaintiffs must allege and prove: (a) that they
have prior physical possession of the property; (b) that they were deprived of
possession either by force, intimidation, threat, strategy or stealth; and, (c) that the
action was filed within one (1) year from the time the owners or legal possessors
learned of their deprivation of the physical possession of the property.28
There is only one issue in ejectment proceedings: who is entitled to physical or
material possession of the premises, that is, to possession de facto, not possession de
Jure? Issues as to the right of possession or ownership are not involved in the action;
evidence thereon is not admissible, except only for the purpose of determining the
issue of possession.29
As a rule, the word "possession" in forcible entry suits indeed refers to nothing more
than prior physical possession or possession de facto, not possession de Jure or legal
possession in the sense contemplated in civil law. Title is not the issue, and the
absence of it "is not a ground for the courts to withhold relief from the parties in an
ejectment case."30
The Court, however, has consistently ruled in a number of cases31 that while prior
physical possession is an indispensable requirement in forcible entry cases, the dearth
of merit in respondent's position is evident from the principle that possession can be
acquired not only by material occupation, but also by the fact that a thing is subject to
the action of one's will or by the proper acts and legal formalities established for
acquiring such right. The case of Quizon v. Juan,32 which surprisingly was relied on by
the CA, also stressed this doctrine.
Possession can be acquired by juridical acts. These are acts to which the law gives the
force of acts of possession. Examples of these are donations, succession, execution
and registration of public instruments, inscription of possessory information titles and
the like.33 The reason for this exceptional rule is that possession in the eyes of the law
does not mean that a man has to have his feet on every square meter of ground before
it can be said that he is in possession.34 It is sufficient that petitioner was able to
subject the property to the action of his will.35 Here, respondent failed to show that he
falls under any of these circumstances. He could not even say that the subject property

was leased to him except that he promised that he would vacate it if petitioner would
be able to show the boundaries of the titled lot.
In the case of Nunez v. SLTEAS Phoenix Solutions, inc., 36 the subject parcel was
acquired by the respondent by virtue of the June 4, 1999 Deed of Assignment
executed in its favor by Spouses Ong Tiko and Emerenciana Sylianteng. The petitioner
in the said case argued that, aside from the admission in the complaint that the subject
parcel was left idle and unguarded, the respondent's claim of prior possession was
clearly negated by the fact that he had been in occupancy thereof since 1999. The
Court disagreed with the petitioner and said: Although it did not immediately put the
same to active use, respondent appears to have additionally caused the property to be
registered in its name as of February 27, 2002 and to have paid the real property taxes
due thereon alongside the sundry expenses incidental thereto. Viewed in the light of
the foregoing juridical acts, it consequently did not matter that, by the time respondent
conducted its ocular inspection in October 2003, petitioner hml already been occupying
the land since 1999.
[Emphasis and underscoring supplied]
Hence, in that case, the Court ruled that such juridical acts were sufficient to establish
the respondent's prior possession of the subject property.
The case of Habagat Grill v. DMC-Urban Property Developer, Inc.,37 also involves an
action for forcible entry. On June 11, 1981, David M. Consunji, Inc. acquired a
residential lot situated in Matin a, Davao City, which was covered by TCT No. T-82338.
On June 13, 1981, it transferred the said lot to respondent DMC. Alleging that the
petitioner forcibly entered the property in December 1993, the respondent filed on
March 28, 1994 a complaint for forcible entry. One of the issues raised therein was
whether respondent DMC had prior possession of the subject property, to which the
Court answered in the affirmative. It ruled that:
Prior possession of the lot by respondent's predecessor was sufficiently proven by
evidence of the execution and registration of public instruments and by the fact that the
lot was subject to its will from then until December 1, 1993, when petitioner unlawfully
entered the premises and deprived the former of possession thereof.
[Emphasis and underscoring supplied]
In the case at bench, the Court finds that pet1t1oner acquired possession of the
subject property by juridical act, specifically, through the issuance of a free patent
under Commonwealth Act No. 141 and its subsequent registration with the Register of
Deeds on March 18, 1987.38
Before the Court continues any further, it must be determined first whether the issue of
ownership is material and relevant in resolving the issue of possession. The Rules of
Court in fact expressly allow this: Section 16, Rule 70 of the Rules of Court provides

that the issue of ownership shall be resolved in deciding the issue of possession if the
question of possession is intertwined with the issue of ownership. But this provision is
only an exception and is allowed only in this limited instance - to determine the issue of
possession and only if the question of possession cannot be resolved without deciding
the issue of ownership.39
This Court is of the strong view that the issue of ownership should be provisionally
determined in this case. First, the juridical act from which the right of ownership of
petitioner arise would be the registration of the free patent and the issuance of OCT
No. RP-174(13789). Apparently, the Torrens title suggests ownership over the land.
Second, respondent also asserts ownership over the land based on his prior, actual,
continuous, public, notorious, exclusive and peaceful possession in the concept of an
owner of the property in dispute.40 Because there are conflicting claims of ownership,
then it is proper to provisionally determine the issue of ownership to settle the issue of
possession de facto.
Returning to the case, this Court cannot agree with the CA that petitioner's OCT No.
RP-174(13789) and his tax declarations should absolutely be disregarded. The
issuance of an original certificate of title to the petitioner evidences ownership and from
it, a right to the possession of the property flows. Well-entrenched is the rule that a
person who has a Torrens title over the property is entitled to the possession thereof.41
Moreover, his claim of possession is coupled with tax declarations. While tax
declarations are not conclusive proof of possession of a parcel of land, they are good
indicia of possession in the concept of an owner, for no one in his right mind would be
paying taxes for a property that is not in his actual or constructive
possession.42 Together with the Torrens title, the tax declarations dated 1995 onwards
presented by petitioner strengthens his claim of possession over the land before his
dispossession on October 31, 2006 by respondent.
The CA was in error in citing the case of De Grano v. Lacaba43 to support its ruling. In
that case, the respondent tried to prove prior possession, by presenting only his tax
declarations, tax receipt and a certification from the municipal assessor attesting that
he had paid real property tax from previous years. The Court did not give credence to
his claim because tax declarations and realty tax payments are not conclusive proof of
possession. The situation in the present case differs because aside from presenting his
tax declarations, the petitioner submitted OCT No. RP-174(13 789) which is the best
evidence of ownership from where his right to possession arises.
Against the Torrens title and tax declarations of petitioner, the bare allegations of
respondent that he had prior, actual, continuous, public, notorious, exclusive and
peaceful possession in the concept of an owner, has no leg to stand on. Thus, by
provisionally resolving the issue of ownership, the Court is satisfied that petitioner had
prior possession of the subject property. When petitioner discovered the stealthy
intrusion of respondent over his registered prope1iy, he immediately filed a complaint
with the Lupong Tagapamayapa and subsequently filed an action for forcible entry with
the MTC. Instead of taking the law into his own hands and forcefully expelling

respondent from his property, petitioner composed himself and followed the
established legal procedure to regain possession of his land.
If the Court were to follow the ruling of the CA and disregard juridical acts to obtain
prior possession, then it would create an absurd situation. It would be putting premium
in favor of land intruders against Torrens title holders, who spent months, or even
years, in order to register their land, and who religiously paid real property taxes
thereon. They cannot immediately repossess their properties simply because they
have to prove their literal and physical possession of their property prior to the
controversy. The Torrens title holders would have to resort to ordinary civil procedure
by filing either an accion publiciana or accion reinvidicatoria and undergo arduous and
protracted litigation while the intruders continuously enjoy and rip the benefits of
another man's land. It will defeat the very purpose of the summary procedure of an
action for forcible entry.
The underlying philosophy behind ejectment suits is to prevent breach of the peace
and criminal disorder and to compel the party out of possession to respect and resort
to the law alone to obtain what he claims is his. Ejectment proceedings are summary in
nature so the authorities can speedily settle actions to recover possession because of
the overriding need to quell social disturbances.44
As to the other requirements of an action for forcible entry, the Court agrees with the
RTC that petitioner had sufficiently complied with them. Petitioner proved that he was
deprived of possession of the property by stealth.1wphi1The complaint was also filed
on October 30, 2007, within the one year reglementary period counted from the
discovery of the stealthy entry by respondent to the property on October 31, 2006.
The second issue raised is the validity of the CA Resolution dated December 5, 2012.
Petitioner alleges that the CA denied his reconsideration without indicating its legal
basis in violation of the mandate of Section 14, Article VIII of the Constitution, which
provides that no petition for review or motion for reconsideration of a decision of the
court shall be refused due course or denied without stating the legal basis therefor.
This requirement, however, was complied with when the CA, in its resolution denying
petitioner's motion for reconsideration, stated that it "finds no cogent reason to reverse,
amend, much less reverse the assailed Decision, dated June 13, 2012."45
WHEREFORE, the petition is GRANTED. The June 13, 2012 Decision and the
December 5, 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 122153 are
hereby REVERSED and SET ASIDE. The August 23, 2011 Decision of the Regional
Trial Court, Branch 33, Bauang, La Union, is hereby REINSTATED.
SO ORDERED.

In the contract, Carmelita Leao bound herself to pay Hermogenes Fernando the sum
of one hundred seven thousand and seven hundred and fifty pesos (P107,750.00) as
the total purchase price of the lot. The manner of paying the total purchase price was
as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE
(P10,775.00) PESOS, shall be paid at the signing of this contract as DOWN
PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED
SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of TEN
(10) years at a monthly amortization of P1,747.30 to begin from December 7,
1985 with interest at eighteen per cent (18%) per annum based on
balances."4
The contract also provided for a grace period of one month within which to make
payments, together with the one corresponding to the month of grace. Should the
month of grace expire without the installments for both months having been satisfied,
an interest of 18% per annum will be charged on the unpaid installments.5
Should a period of ninety (90) days elapse from the expiration of the grace period
without the overdue and unpaid installments having been paid with the corresponding
interests up to that date, respondent Fernando, as vendor, was authorized to declare
the contract cancelled and to dispose of the parcel of land, as if the contract had not
been entered into. The payments made, together with all the improvements made on
the premises, shall be considered as rents paid for the use and occupation of the
premises and as liquidated damages.6

CARMELITA LEAO, assisted by her husband GREGORIO CUACHON, petitioner,

vs.
COURT OF APPEALS and HERMOGENES FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the decision1 of the Court of Appeals
affirming that of the Regional Trial Court, Malolos, Branch 72 ordering petitioner Leao
to pay respondent Hermogenes Fernando the sum of P183,687.70 corresponding to
her outstanding obligations under the contract to sell, with interest and surcharges due
thereon, attorney's fees and costs.1wphi1.nt
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao, as
vendee executed a contract to sell involving a piece of land, Lot No. 876-B, with an
area of 431 square meters, located at Sto. Cristo, Baliuag, Bulacan.3

After the execution of the contract, Carmelita Leao made several payments in lump
sum.7 Thereafter, she constructed a house on the lot valued at P800,000.00.8 The last
payment that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an ejectment
case9 earlier filed by respondent Fernando ordering petitioner Leao to vacate the
premises and to pay P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until she vacated the premises,
attorney's fees and costs of the suit.10 On August 24, 1993, the trial court issued a writ
of execution which was duly served on petitioner Leao.
On September 27, 1993, petitioner Leao filed with the Regional Trial Court of Malolos,
Bulacan a complaint for specific performance with preliminary injunction.11 Petitioner
Leao assailed the validity of the judgment of the municipal trial court12 for being
violative of her right to due process and for being contrary to the avowed intentions of
Republic Act No. 6552 regarding protection to buyers of lots on installments. Petitioner
Leao deposited P18,000.00 with the clerk of court, Regional Trial Court, Bulacan, to
cover the balance of the total cost of Lot 876-B.13
On November 4, 1993, after petitioner Leao posted a cash bond of P50,000.00,14 the
trial court issued a writ of preliminary injunction15 to stay the enforcement of the
decision of the municipal trial court.16

On February 6, 1995, the trial court rendered a decision, the dispositive portion of
which reads:
"WHEREFORE, judgment is hereby rendered as follows:
"1. The preliminary injunction issued by this court per its order dated
November 4, 1993 is hereby made permanent;

corresponding penalty shall be imposed in case of default. The plaintiff

certainly cannot ignore the binding effect of such stipulation by merely
asserting that the ten-year period for payment of the whole purchase price
has not yet lapsed. In other words, the plaintiff has clearly defaulted in the
payment of the amortizations due under the contract as recited in the
statement of account (Exhibit "2") and she should be liable for the payment of
interest and penalties in accordance with the stipulations in the contract
pertaining thereto."21

"2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70
corresponding to her outstanding obligations under the contract to sell
(Exhibit "A" Exhibit "B") consisting of the principal of said obligation together
with the interest and surcharges due thereon as of February 28, 1994, plus
interest thereon at the rate of 18% per annum in accordance with the
provision of said contract to be computed from March 1, 1994, until the same
becomes fully paid;

The trial court disregarded petitioner Leaos claim that she made a downpayment of
P10,000.00, at the time of the execution of the contract.

"3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by
way of attorney's fees;

The trial court held that the consignation made by petitioner Leao in the amount of
P18,000.00 did not produce any legal effect as the same was not done in accordance
with Articles 1176, 1177 and 1178 of the Civil Code.

"4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case
No. 1680 aforementioned.

The trial court relied on the statement of account22 and the summary23 prepared by
respondent Fernando to determine petitioner Leao's liability for the payment of
interests and penalties.

"SO ORDERED.

In time, petitioner Leao appealed the decision to the Court of Appeals.24 On January
22, 1997, Court of Appeals promulgated a decision affirming that of the Regional Trial
Court in toto.25 On February 11, 1997, petitioner Leao filed a motion for
reconsideration.26 On April 18, 1997, the Court of Appeals denied the motion.27

"Malolos, Bulacan, February 6, 1995.

Hence, this petition.28

The Issues

"(sgd.) DANILO A. MANALASTAS

Judge"17
On February 21, 1995, respondent Fernando filed a motion for reconsideration18 and
the supplement19 thereto. The trial court increased the amount of P103,090.70 to
P183,687.00 and ordered petitioner Leao ordered to pay attorney's fees.20

The issues to be resolved in this petition for review are (1) whether the transaction
between the parties in an absolute sale or a conditional sale; (2) whether there was a
proper cancellation of the contract to sell; and (3) whether petitioner was in delay in the
payment of the monthly amortizations.
The Court's Ruling

According to the trial court, the transaction between the parties was an absolute sale,
making petitioner Leao the owner of the lot upon actual and constructive delivery
thereof. Respondent Fernando, the seller, was divested of ownership and cannot
recover the same unless the contract is rescinded pursuant to Article 1592 of the Civil
Code which requires a judicial or notarial demand. Since there had been no rescission,
petitioner Leao, as the owner in possession of the property, cannot be evicted.

Contrary to the findings of the trial court, the transaction between the parties was a
conditional sale not an absolute sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid the total purchase price.

On the issue of delay, the trial court held:

First, the contract to sell makes the sale, cession and conveyance "subject to
conditions" set forth in the contract to sell.29

"While the said contract provides that the whole purchase price is payable
within a ten-year period, yet the same contract clearly specifies that the
purchase price shall be payable in monthly installments for which the

Consider the following:

Second, what was transferred was the possession of the property, not ownership. The
possession is even limited by the following: (1) that the vendee may continue therewith

"as long as the VENDEE complies with all the terms and conditions mentioned, and (2)
that the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber
any right, interest or equity that she may have or acquire in and to the said parcel of
land nor to lease or to sublease it or give possession to another person without the
written consent of the seller.30
Finally, the ownership of the lot was not transferred to Carmelita Leao. As the land is
covered by a torrens title, the act of registration of the deed of sale was the operative
act that could transfer ownership over the lot.31 There is not even a deed that could be
registered since the contract provides that the seller will execute such a deed "upon
complete payment by the VENDEE of the total purchase price of the property" with the
stipulated interest.32
In a contract to sell real property on installments, the full payment of the purchase price
is a positive suspensive condition, the failure of which is not considered a breach,
casual or serious, but simply an event that prevented the obligation of the vendor to
convey title from acquiring any obligatory force.33 The transfer of ownership and title
would occur after full payment of the price.34
In the case at bar, petitioner Leao's non-payment of the installments after April 1,
1989, prevented the obligation of respondent Fernando to convey the property from
arising. In fact, it brought into effect the provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable
to the case at bar.35However, any attempt to cancel the contract to sell would have to
comply with the provisions of Republic Act No. 6552, the "Realty Installment Buyer
Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the contract upon non-payment
of an installment by the buyer, which is simply an event that prevents the obligation of
the vendor to convey title from acquiring binding force.36 The law also provides for the
rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides that:
"If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty percent of
the total payments made and, after five years of installments, an additional
five percent every year but not to exceed ninety percent of the total payment
made: Provided, That the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer." [Emphasis supplied]
The decision in the ejectment case37 operated as the notice of cancellation required by
Sec. 3(b). As petitioner Leao was not given then cash surrender value of the
payments that she made, there was still no actual cancellation of the contract.
Consequently, petitioner Leao may still reinstate the contract by updating the account
during the grace period and before actual cancellation.38

Should petitioner Leao wish to reinstate the contract, she would have to update her
accounts with respondent Fernando in accordance with the statement of
account39 which amount was P183,687.00.40
On the issue of whether petitioner Leao was in delay in paying the amortizations, we
rule that while the contract provided that the total purchase price was payable within a
ten-year period, the same contract specified that the purchase price shall be paid in
monthly installments for which the corresponding penalty shall be imposed in case of
default. Petitioner Leao cannot ignore the provision on the payment of monthly
installments by claiming that the ten-year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins.1wphi1.nt
In the case at bar, respondent Fernando performed his part of the obligation by
allowing petitioner Leao to continue in possession and use of the property. Clearly,
when petitioner Leao did not pay the monthly amortizations in accordance with the
terms of the contract, she was in delay and liable for damages.41 However, we agree
with the trial court that the default committed by petitioner Leao in respect of the
obligation could be compensated by the interest and surcharges imposed upon her
under the contract in question.42
It is a cardinal rule in the interpretation of contracts that 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.43 Thus, as there is no ambiguity in the language
of the contract, there is no room for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court of
Appeals44 in toto.
No costs.
SO ORDERED.

an area of 3,002 square meters, covered by Transfer Certificate of Title No. 48866.
The lease was for six years, ending May 31, 1990. The contract contained an option to
buy clause. Under said option, the lessee had the exclusive and irrevocable right to
buy 2,000 square meters of the property within five years from a year after the
effectivity of the contract, at P200 per square meter. That rate shall be proportionately
adjusted depending on the peso rate against the US dollar, which at the time of the
execution of the contract was fourteen pesos.1
Close to the expiration of the contract, Luis Bacus died on October 10, 1989.
Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the
heirs of Luis Bacus, that they were willing and ready to purchase the property under
the option to buy clause. They requested Roque Bacus to prepare the necessary
documents, such as a Special Power of Attorney authorizing him to enter into a
contract of sale,2 on behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino
Duray's adverse claim was annotated by the Register of Deeds of Cebu, at the back of
TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No. 3661A-3-B-2-A.3

HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R. BACUS,

SR., SATURNINO R. BACUS, PRISCILA VDA. DE CABANERO, CARMELITA B.
SUQUIB, BERNARDITA B. CARDENAS, RAUL R. BACUS, MEDARDO R. BACUS,
ANSELMA B. ALBAN, RICARDO R. BACUS, FELICISIMA B. JUDICO, and
DOMINICIANA B. TANGAL, petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and VICTORIANA
DURAY, respondents.
QUISUMBING, J.:
This petition assails the decision dated November 29, 1996, of the Court of Appeals in
CA-G.R. CV No. 37566, affirming the decision dated August 3, 1991, of the Regional
Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-8935.
The facts, as culled from the records, are as follows:
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of
agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had

Subsequently, on April 5, 1990, Duray filed a complaint for specific performance

against the heirs of Luis Bacus with the Lupon Tagapamayapa of Barangay Bulacao,
asking that he be allowed to purchase the lot specifically referred to in the lease
contract with option to buy. At the hearing, Duray presented a certification4 from the
manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating
that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being
made to allow Faustino Duray to borrow funds of approximately P700,000 to enable
him to meet his obligations under the contract with Luis Bacus.5
Having failed to reach an agreement before the Lupon, on April 27, 1990, private
respondents filed a complaint for specific performance with damages against
petitioners before the Regional Trial Court, praying that the latter, (a) execute a deed of
sale over the subject property in favor of private respondents; (b) receive the payment
of the purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis Bacus' death, private
respondents conveyed to them the former's lack of interest to exercise their option
because of insufficiency of funds, but they were surprised to learn of private
respondents' demand. In turn, they requested private respondents to pay the purchase
price in full but the latter refused. They further alleged that private respondents did not
deposit the money as required by theLupon and instead presented a bank certification
which cannot be deemed legal tender.
On October 30, 1990, private respondents manifested in court that they caused the
issuance of a cashier's check in the amount of P650,0006 payable to petitioners at
anytime upon demand.

On August 3, 1991, the Regional Trial Court ruled in favor of private respondents, the
dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and orders the
defendants to specifically perform their obligation in the option to buy and to
execute a document of sale over the property covered by Transfer Certificate
of Title # T-63269 upon payment by the plaintiffs to them in the amount of Six
Hundred Seventy-Five Thousand Six Hundred Seventy-Five (P675,675.00)
Pesos within a period of thirty (30) days from the date this decision becomes
final.
SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied the
appeal on November 29, 1996, on the ground that the private respondents exercised
their option to buy the leased property before the expiration of the contract of lease. It
held:
. . . After a careful review of the entire records of this case, we are convinced
that the plaintiffs-appellees validly and effectively exercised their option to buy
the subject property. As opined by the lower court, "the readiness and
preparedness of the plaintiff on his part, is manifested by his cautionary
letters, the prepared bank certification long before the date of May 31, 1990,
the final day of the option, and his filing of this suit before said date. If the
plaintiff-appellee Francisco Duray had no intention to purchase the property,
he would not have bothered to write those letters to the defendant-appellants
(which were all received by them) and neither would he be interested in
having his adverse claim annotated at the back of the T.C.T. of the subject
property, two (2) months before the expiration of the lease. Moreover, he even
went to the extent of seeking the help of the Lupon Tagapamayapa to compel
the defendants-appellants to recognize his right to purchase the property and
for them to perform their corresponding obligation.8
xxx

xxx

xxx

We therefore find no merit in this appeal.

WHEREFORE, the decision appealed from is hereby AFFIRMED.9
Hence, this petition where petitioners aver that the Court of Appeals gravely erred and
abused its discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC
PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS
THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE PROPERTY
IN QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF

P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION
BECOMES FINAL;
II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF
LAW AND JURISPRUDENCE IN UPHOLDING THE DECISION OF THE
TRIAL COURT TO THE EFFECT THAT PRIVATE RESPONDENTS HAD
EXERCISED THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE
PRESENTATION OF THE CERTIFICATION OF THE BANK MANAGER OF A
BANK DEPOSIT IN THE NAME OF ANOTHER PERSON FOR LOAN TO
RESPONDENTS WAS EQUIVALENT TO A VALID TENDER OF PAYMENT
AND A SUFFICIENT COMPLAINCE (SIC) OF A CONDITION FOR THE
EXERCISE OF THE OPTION TO BUY; AND
III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT THE
PRESENTATION OF A CASHER'S (SIC) CHECK BY THE RESPONDENTS
IN THE AMOUNT OF P625,000.00 EVEN AFTER THE TERMINATION OF
THE TRIAL ON THE MERITS WITH BOTH PARTIES ALREADY HAVING
RESTED THEIR CASE, WAS STILL VALID COMPLIANCE OF THE
CONDITION FOR THE PRIVATE RESPONDENTS' (PLAINTIFFS THEREIN)
EXERCISE OF RIGHT OF OPTION TO BUY AND HAD A FORCE OF VALID
AND FULL TENDER OF PAYMENT WITHIN THE AGREED PERIOD.10
Petitioners insist that they cannot be compelled to sell the disputed property by virtue
of the nonfulfillment of the obligation under the option contract of the private
respondents.
Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of the
Rules of Court govern their petition, and that petitioners only raised questions of facts
which this Court cannot properly entertain in a petition for review. They claim that even
assuming that the instant petition is one under Rule 45, the same must be denied for
the Court of Appeals has correctly determined that they had validly exercised their
option to buy the leased property before the contract expired.
In response, petitioners state that private respondents erred in initially classifying the
instant petition as one under Rule 65 of the Rules of Court. They argue that the petition
is one under Rule 45 where errors of the Court of Appeals, whether evidentiary or legal
in nature, may be reviewed.
We agree with private respondents that in a petition for review under Rule 45, only
questions of law may be raised.11 However, a close reading of petitioners' arguments
reveal the following legal issues which may properly be entertained in the instant
petition:
a) When private respondents opted to buy the property covered by the lease
contract with option to buy, were they already required to deliver the money or
consign it in court before petitioner executes a deed of transfer?

b) Did private respondents incur in delay when they did not deliver the
purchase price or consign it in court on or before the expiration of the
contract?
On the first issue, petitioners contend that private respondents failed to comply with
their obligation because there was neither actual delivery to them nor consignation in
court or with the Municipal, City or Provincial Treasurer of the purchase price before
the contract expired. Private respondents' bank certificate stating that arrangements
were being made by the bank to release P700,000 as a loan to private respondents
cannot be considered as legal tender that may substitute for delivery of payment to
petitioners nor was it a consignation.
Obligations under an option to buy are reciprocal obligations.12 The performance of
one obligation is conditioned on the simultaneous fulfillment of the other obligation.13 In
other words, in an option to buy, the payment of the purchase price by the creditor is
contingent upon the execution and delivery of a deed of sale by the debtor. In this
case, when private respondents opted to buy the property, their obligation was to
advise petitioners of their decision and their readiness to pay the price. They were not
yet obliged to make actual payment. Only upon petitioners' actual execution and
delivery of the deed of sale were they required to pay. As earlier stated, the latter was
contingent upon the former. In Nietes vs. Court of Appeals, 46 SCRA 654 (1972), we
held that notice of the creditor's decision to exercise his option to buy need not be
coupled with actual payment of the price, so long as this is delivered to the owner of
the property upon performance of his part of the agreement. Consequently, since the
obligation was not yet due, consignation in court of the purchase price was not yet
required.
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and it generally
requires a prior tender of payment. In instances, where no debt is due and owing,
consignation is not proper.14 Therefore, petitioners' contention that private respondents
failed to comply with their obligation under the option to buy because they failed to
actually deliver the purchase price or consign it in court before the contract expired and
before they execute a deed, has no leg to stand on.
Corollary, private respondents did not incur in delay when they did not yet deliver
payment nor make a consignation before the expiration of the contract. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. Only from the moment
one of the parties fulfills his obligation, does delay by the other begin.15
In this case, private respondents, as early as March 15, 1990, communicated to
petitioners their intention to buy the property and they were at that time undertaking to
meet their obligation before the expiration of the contract on May 31, 1990. However,
petitioners refused to execute the deed of sale and it was their demand to private
respondents to first deliver the money before they would execute the same which
prompted private respondents to institute a case for specific performance in

the Lupong Tagapamayapa and then in the RTC. On October 30, 1990, after the case
had been submitted for decision but before the trial court rendered its decision, private
respondents issued a cashier's check in petitioners' favor purportedly to bolster their
claim that they were ready to pay the purchase price. The trial court considered this in
private respondents' favor and we believe that it rightly did so, because at the time the
check was issued, petitioners had not yet executed a deed of sale nor expressed
readiness to do so. Accordingly, as there was no compliance yet with what was
incumbent upon petitioners under the option to buy, private respondents had not
incurred in delay when the cashier's check was issued even after the contract expired.
WHEREFORE, the instant petition is DENIED. The decision dated November 29, 1996
of the Court of Appeals is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.

meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park,"
located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the
reservation fee of P100,000, orP4,940,611.19, by postdated check payable on July 14,
1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from
August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 onOctober
31, 1998, the stipulated delivery date of the unit; provided that if the construction is
completed earlier, Tanseco would pay the balance within seven days from receipt of a
notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as
follows:
4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s
herein purchased shall be completed and delivered not later than October 31, 1998
with additional grace period of six (6) months within which to complete the Project and
the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil
disturbances, strikes or other labor disturbances, government and economic controls
making it, among others, impossible or difficult to obtain the necessary materials, acts
of third person, or any other cause or conditions beyond the control of the SELLER. In
this event, the completion and delivery of the unit are deemed extended accordingly
without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER
reserves the right to withdraw from this transaction and refund to the BUYER without
interest the amounts received from him under this contract if for any reason not
attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes,
rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons
beyond its control, the Project may not be completed or it can only be completed at a
financial loss to the SELLER. In any event, all construction on or of the Project shall
remain the property of the SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance
of P2,520,305.63 pending delivery of the unit.2 Megaworld, however, failed to deliver
the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day
of the six-month grace period.
MEGAWORLD GLOBUS ASIA, INC., Petitioner,
vs.
MILA S. TANSECO, Respondent.
DECISION
CARPIO MORALES, J.:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent
Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-

A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice
of turnover), informed Tanseco that the unit was ready for inspection preparatory to
delivery.3 Tanseco replied through counsel, by letter of May 6, 2002, that in view of
Megaworlds failure to deliver the unit on time, she was demanding the return
of P14,281,731.70 representing the total installment payment she had made, with
interest at 12% per annum from April 30, 1999, the expiration of the six-month grace
period. Tanseco pointed out that none of the excepted causes of delay existed.4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing
and Land Use Regulatory Boards (HLURB) Expanded National Capital Region Field

Office a complaint against Megaworld for rescission of contract, refund of payment,

and damages.5

April 30, 1999 alternative date; and that specific performance could not be ordered in
lieu of rescission as the right to choose the remedy belongs to the aggrieved party.

In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which
was beyond its control; and argued that default had not set in, Tanseco not having
made any judicial or extrajudicial demand for delivery before receipt of the notice of
turnover.6

The appellate court awarded Tanseco exemplary damages on a finding of bad faith on
the part of Megaworld in forcing her to accept its long-delayed delivery; and attorneys
fees, she having been compelled to sue to protect her rights.

By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tansecos complaint for
lack of cause of action, finding that Megaworld had effected delivery by the notice of
turnover before Tanseco made a demand. Tanseco was thereupon ordered to pay
Megaworld the balance of the purchase price, plus P25,000 as moral
damages,P25,000 as exemplary damages, and P25,000 as attorneys fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of
November 28, 2003,8 sustained the HLURB Arbiters Decision on the ground of laches
for failure to demand rescission when the right thereto accrued. It deleted the award of
damages, however. Tansecos Motion for Reconsideration having been denied,9 she
appealed to the Office of the President which dismissed the appeal by Decision of April
28, 200610 for failure to show that the findings of the HLURB were tainted with grave
abuse of discretion. Her Motion for Reconsideration having been denied by Resolution
dated August 30, 2006,11 Tanseco filed a Petition for Review under Rule 43 with the
Court of Appeals.12
By Decision of September 28, 2007,13 the appellate court granted Tansecos petition,
disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the assailed
May 28, 2003 decision of the HLURB Field Office, the November 28, 2003 decision of
the HLURB Board of Commissioners in HLURB Case No. REM-A-030711-0162, the
April 28, 2006 Decision and August 30, 2006 Resolution of the Office of the President
in O.P. Case No. 05-I-318, are hereby REVERSED and SET ASIDE and a new one
entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the
contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the
amount she had paid totaling P14,281,731.70 with Twelve (12%) Percent interest per
annum from October 31, 1998; (3) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 by way of exemplary damages;
(4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorneys fees;
and (5)ORDERING MEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in
the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or
extrajudicial demand is needed to put the obligor in default if the contract, as in the
herein parties contract, states the date when the obligation should be performed; that
time was of the essence because Tanseco relied on Megaworlds promise of timely
delivery when she agreed to part with her money; that the delay should be reckoned
from October 31, 1998, there being no force majeure to warrant the application of the

Its Motion for Reconsideration having been denied by Resolution of January 8,

2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its
position before the HLURB, adding that Tanseco had not shown any basis for the
award of damages and attorneys fees.15
Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad
faith which became evident when it insisted on making the delivery despite the long
delay,16 insisted that she deserved the award of damages and attorneys fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
(Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months
thereafter on the part of Megaworld, and to pay the balance of the purchase price at or
about the time of delivery on the part of Tanseco. Compliance by Megaworld with its
obligation is determinative of compliance by Tanseco with her obligation to pay the

balance of the purchase price. Megaworld having failed to comply with its obligation
under the contract, it is liable therefor.17

and then 12% per annum from the time this judgment becomes final and executory,
conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.22

That Megaworlds sending of a notice of turnover preceded Tansecos demand for

refund does not abate her cause. For demand would have been useless, Megaworld
admittedly having failed in its obligation to deliver the unit on the agreed date.

The award of P200,000 attorneys fees and of costs of suit is in order too, the parties
having stipulated in the Contract to Buy and Sell that these shall be borne by the losing
party in a suit based thereon,23 not to mention that Tanseco was compelled to retain
the services of counsel to protect her interest. And so is the award of exemplary
damages. With pre-selling ventures mushrooming in the metropolis, there is an
increasing need to correct the insidious practice of real estate companies of proffering
all sorts of empty promises to entice innocent buyers and ensure the profitability of
their projects.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.18
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and
beyond the control of a business corporation. A real estate enterprise engaged in the
pre-selling of condominium units is concededly a master in projections on commodities
and currency movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, hence, not
an instance of caso fortuito.19 Megaworlds excuse for its delay does not thus lie.
As for Megaworlds argument that Tansecos claim is considered barred by laches on
account of her belated demand, it does not lie too. Laches is a creation of equity and
its application is controlled by equitable considerations.20 It bears noting that Tanseco
religiously paid all the installments due up to January, 1998, whereas Megaworld
reneged on its obligation to deliver within the stipulated period. A circumspect weighing
of equitable considerations thus tilts the scale of justice in favor of Tanseco.
Pursuant to Section 23 of Presidential Decree No. 95721 which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid includingamortizati
on interests but excluding delinquency interests, with interest thereon at the legal rate.
(Emphasis and underscoring supplied),
Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid
Megaworld.
While the appellate court correctly awarded P14,281,731.70 then, the interest rate
should, however, be 6% per annum accruing from the date of demand on May 6, 2002,

The Court finds the appellate courts award of P200,000 as exemplary damages
excessive, however. Exemplary damages are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive to
curb socially deleterious actions.24 The Court finds that P100,000 is reasonable in this
case.
Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and
sell, the suspensive condition of full payment of the purchase price not having occurred
to trigger the obligation to convey title,cancellation, not rescission, of the contract is
thus the correct remedy in the premises.26
WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the
foregoing, AFFIRMED with MODIFICATION.
As modified, the dispositive portion of the Decision reads:
The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner,
Megaworld Globus Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the
amount of P14,281,731.70, to bear 6% interest per annum starting May 6, 2002 and
12% interest per annum from the time the judgment becomes final and executory; and
to pay P200,000 attorneys fees, P100,000 exemplary damages, and costs of suit.
Costs against petitioner.
SO ORDERED.

GENERAL MILLING CORPORATION, Petitioner,

vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA)
in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos
v. General Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the
Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for
Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with
Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers
Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the
contract, GMC was to supply broiler chickens for the spouses to raise on their land in
Barangay Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the
Growers Contract was accompanied by a Deed of Real Estate Mortgage over a piece
of real property upon which their conjugal home was built. The spouses further agreed
to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC.
The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit
line of PhP 215,000 payable within an indefinite period with an interest of twelve
percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full
and faithful compliance of [MORTGAGORS] obligation/s with the MORTGAGEE by a
First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and
the improvements existing thereon, situated in the Barrio/s of Banaybanay,
Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto
being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the
Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P
215,000.00), Philippine Currency, which the maximum credit line payable within a x x x
day term and to secure the payment of the same plus interest of twelve percent (12%)
per annum.

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

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

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

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

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On

June 10, 1997, the property subject of the foreclosure was subsequently sold by public
auction to GMC after the required posting and publication.5 It was foreclosed for PhP
935,882,075, an amount representing the losses on chicks and feeds exclusive of
interest at 12% per annum and attorneys fees.6 To complicate matters, on October 27,
1997, GMC informed the spouses that its Agribusiness Division had closed its
business and poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or
Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They
contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void,
since there was no compliance with the requirements of posting and publication of
notices under Act No. 3135, as amended, or An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate Mortgages. They likewise
claimed that there was no sheriffs affidavit to prove compliance with the requirements
on posting and publication of notices. It was further alleged that the Deed of Real
Estate Mortgage had no fixed term. A prayer for moral and exemplary damages and
attorneys fees was also included in the complaint.8 Librado Ramos alleged that, when
the property was foreclosed, GMC did not notify him at all of the foreclosure.9

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is
hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all
intents and puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay
Spouses Librado and Remedios Ramos attorneys fees in the total amount of
P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates or a total appearance fee of P
27,000.00;
4. The claims for moral and exemplary damages are denied for lack of merit.

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

IT IS SO ORDERED.13

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their
liabilities under the Growers Contract. It argued that it was compelled to foreclose the
mortgage because of Spouses Ramos failure to pay their obligation. GMC insisted that
it had observed all the requirements of posting and publication of notices under Act No.
3135.11

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

The Ruling of the Trial Court

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

The Ruling of the Appellate Court

The CA sustained the decision of the trial court but anchored its ruling on a different
ground. Contrary to the findings of the trial court, the CA ruled that the requirements of
posting and publication of notices under Act No. 3135 were complied with. The CA,
however, still found that GMCs action against Spouses Ramos was premature, as
they were not in default when the action was filed on May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendantappellant GMC made no demand to spouses Ramos for the full payment of their
obligation. While it was alleged in the Answer as well as in the Affidavit constituting the

direct testimony of Joseph Dominise, the principal witness of defendant-appellant

GMC, that demands were sent to spouses Ramos, the documentary evidence proves
otherwise. A perusal of the letters presented and offered as evidence by defendantappellant GMC did not "demand" but only request spouses Ramos to go to the office of
GMC to "discuss" the settlement of their account.15
According to the CA, however, the RTC erroneously awarded attorneys fees to
Spouses Ramos, since the presumption of good faith on the part of GMC was not
overturned.

In their Comment,19 respondents-spouses aver that the CA has ample authority to rule
on matters not assigned as errors on appeal if these are indispensable or necessary to
the just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an
appellate court has a broad discretionary power in waiving the lack of assignment of
errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court
over the subject matter;

The CA disposed of the case as follows:

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

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

Hence, We have this appeal.

The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND
DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY
THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT
IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC
MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL
PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER
DATED MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENT
SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE
IT DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand letter was not raised
in the trial court, the CA, by considering such issue, violated the basic requirements of
fair play, justice, and due process.18

(d) Matters not specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the issue submitted
which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error
assigned;
(f) Matters not assigned as errors on appeal but upon which the determination
of a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and complete
resolution of the appeal if there is a ruling on whether the Spouses Ramos were
actually in default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of the
CA in finding that no demand was made on Spouses Ramos to pay their obligation. On
the contrary, it claims that its March 31, 1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtors performance.21

According to the CA, GMC did not make a demand on Spouses Ramos but merely
requested them to go to GMCs office to discuss the settlement of their account. In
spite of the lack of demand made on the spouses, however, GMC proceeded with the
foreclosure proceedings. Neither was there any provision in the Deed of Real Estate
Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of
demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being
necessary for delay to exist, We agree with the appellate court that GMC should have
first made a demand on the spouses before proceeding to foreclose the real estate
mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant case:
The issue of whether demand was made before the foreclosure was effected is
essential.1avvphi1 If demand was made and duly received by the respondents and the
latter still did not pay, then they were already in default and foreclosure was proper.
However, if demand was not made, then the loans had not yet become due and
demandable. This meant that respondents had not defaulted in their payments and the
foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in
default in the payment of his obligation.22
In turn, whether or not demand was made is a question of fact.23 This petition filed
under Rule 45 of the Rules of Court shall raise only questions of law. For a question to
be one of law, it must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest solely
on what the law provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed is one of fact.24 It
need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual
findings of the trial court, because petitioner GMC has not shown any circumstances
making this case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No.
85400 is AFFIRMED.
SO ORDERED.

R.S. TOMAS, INC., Petitioner,

vs.
RIZAL CEMENT COMPANY, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioner R.S. Tomas, Inc. against respondent Rizal Cement Company, Inc. assailing
the Court of Appeals (CA) Decision1 dated December 19, 2005 and Resolution2 dated
June 6, 2006 in CA-G.R. CV No. 61049. The assailed decision reversed and set aside
the Regional Trial Court3 (RTC) Decision4 dated June 5, 1998 in Civil Case No. 921562.
The facts of the case, as culled from the records, are as follows:
On December 28, 1990, respondent and petitioner entered into a Contract5 for the
supply of labor, materials, and technical supervision of the following projects:
1. J.O. #P-90-212 Wiring and installation of primary and secondary lines
system.
2. J.O. #P-90-213 Supply and installation of primary protection and
disconnecting switch.
3. J.O. #P-90-214 Rewinding and conversion of one (1) unit 3125 KVA, 34.5
KV/2.4 KV, 3 Transformer to 4000 KVA, 34.5 KV/480V, 3 Delta Primary,
Wye with neutral secondary.6

Petitioner agreed to perform the above-mentioned job orders. Specifically, it undertook

to supply the labor, equipment, supervision, and materials as specified in the detailed
scope of work.7 For its part, respondent agreed to pay the total sum of P2,944,000.00
in consideration of the performance of the job orders. Petitioner undertook to complete
the projects within one hundred twenty (120) days from the effectivity of the
contract.8 It was agreed upon that petitioner would be liable to respondent for
liquidated damages in the amount of P29,440.00 per day of delay in the completion of
the projects which shall be limited to 10% of the project cost.9 To secure the full and
faithful performance of all its obligations and responsibilities under the contract,
petitioner obtained from Times Surety & Insurance Co. Inc. (Times Insurance) a
performance bond10 in an amount equivalent to fifty percent (50%) of the contract price
or P1,458,618.18. Pursuant to the terms of the contract, respondent made an initial
payment of P1,458,618.18 on January 8, 1991.11
In a letter12 dated March 9, 1991, petitioner requested for an extension of seventy-five
(75) days within which to complete the projects because of the need to import some of
the materials needed. In the same letter, it also asked for a price adjustment
of P255,000.00 to cover the higher cost of materials.13 In another letter14 dated March
27, 1991, petitioner requested for another 75 days extension for the completion of the
transformer portion of the projects for failure of its supplier to deliver the materials.
On June 14, 1991,15 petitioner manifested its desire to complete the project as soon as
possible to prevent further losses and maintain goodwill between the companies.
Petitioner requested for respondents assistance by facilitating the acquisition of
materials and supplies needed to complete J.O. #P-90-212 and J.O. #P-90-213 by
directly paying the suppliers. It further sought that it be allowed to back out from J.O.
#P-90-214 covering the rewinding and conversion of the damaged transformer.
16

In response to petitioners requests, respondent, through counsel, manifested its

observation that petitioners financial status showed that it could no longer complete
the projects as agreed upon. Respondent also informed petitioner that it was already in
default having failed to complete the projects within 120 days from the effectivity of the
contract. Respondent further notified petitioner that the former was terminating the
contract. It also demanded for the refund of the amount already paid to petitioner,
otherwise, the necessary action would be instituted. Respondent sent another demand
letter17 to Times Insurance for the payment of P1,472,000.00 pursuant to the
performance bond it issued.
On November 14, 1991,18 respondent entered into two contracts with Geostar
Philippines, Inc. (Geostar) for the completion of the projects commenced but not
completed by petitioner for a total consideration of P3,435,000.00.
On December 14, 1991, petitioner reiterated its desire to complete J.O. #P-90-212 and
J.O. #P-90-213 and to exclude J.O. #P-90-214,19 but the same was denied by
respondent in a letter20 dated January 14, 1992. In the same letter, respondent pointed
out that amicable settlement is impossible. Hence, the Complaint for Sum of
Money21 filed by respondent against petitioner and Times Surety & Insurance Co., Inc.

praying for the payment of the following: P493,695.00 representing the amount which
they owed respondent from the downpayment and advances made by the latter vis-vis the work accomplishment; P2,550,945.87 representing the amount incurred in
excess of the cost of the projects as agreed upon; P294,000.00 as liquidated
damages; plus interest and attorneys fees.22
Times Insurance did not file any pleading nor appeared in court. For its part, petitioner
denied23 liability and claimed instead that it failed to complete the projects due to
respondents fault. It explained that it relied in good faith on respondents
representation that the transformer subject of the contract could still be rewound and
converted but upon dismantling the core-coil assembly, it discovered that the coils
were already badly damaged and the primary bushing broken. This discovery allegedly
entailed price adjustment. Petitioner thus requested respondent for additional time
within which to complete the project and additional amount to finance the same.
Petitioner also insisted that the proximate cause of the delay is the misrepresentation
of the respondent on the extent of the defect of the transformer.
After the presentation of the parties respective evidence, the RTC rendered a decision
on June 5, 1998 in favor of petitioner, the dispositive portion of which reads:
Wherefore, finding defendant-contractors evidence more preponderant than that of the
plaintiff, judgment is hereby rendered in favor of the defendant-contractor against the
plaintiff and hereby orders:
(1) that the instant case be DISMISSED;
(2) that plaintiff pays defendant the amount of P4,000,000.00; for moral and
exemplary & other damages;
(3) P100,000.00 for attorneys fees and cost of suit.
SO ORDERED.24
The RTC held that the failure of petitioner to complete the projects was not solely due
to its fault but more on respondents misrepresentation and bad faith.25 Therefore, the
Court dismissed respondents complaint. Since respondent was found to have
committed deceit in its dealings with petitioner, the court awarded damages in favor of
the latter.26
Respondent, however, successfully obtained a favorable decision when its appeal was
granted by the CA. The appellate court reversed and set aside the RTC decision and
awarded respondent P493,695.34 for the excess payment made to
petitioner, P508,510.00 for the amount spent in contracting Geostar and P294,400.00
as liquidated damages.27 Contrary to the conclusion of the RTC, the CA found that
petitioner failed to prove that respondent made fraudulent misrepresentation to induce
the former to enter into the contract. It further held that petitioner was given the

opportunity to inspect the transformer before offering its bid. 28 This being so, the CA
added that petitioners failure to avail of such opportunity is inexcusable, considering
that it is a company engaged in the electrical business and the contract involved a
sizable amount of money.29 As to the condition of the subject transformer unit, the
appellate court found the testimony of petitioners president insufficient to prove that
the same could no longer be rewound or converted.30 Considering that advance
payments had been made to petitioner, the court deemed it necessary to require it to
return to respondent the excess amounts, vis--vis its actual accomplishment.31 In
addition to the refund of the excess payment, the CA also ordered the reimbursement
of what respondent paid to Geostar for the unfinished projects of petitioner as well as
the payment of liquidated damages as stipulated in the contract.32
Aggrieved, petitioner comes before the Court in this petition for review on certiorari
under Rule 45 of the Rules of Court raising the following issues: (1) whether or not
respondent was guilty of fraud or misrepresentation as to the actual condition of the
transformer subject of the contract;33 (2) whether or not the evidence presented by
petitioner adequately established the true nature and condition of the subject
transformer;34 (3) whether or not petitioner is guilty of inexcusable delay in the
completion of the projects;35 (4) whether or not petitioner is liable for liquidated
damages;36 and (5) whether or not petitioner is liable for the cost of the contract
between respondent and Geostar.37
The petition is without merit.
The case stemmed from an action for sum of money or damages arising from breach
of contract. The contract involved in this case refers to the rewinding and conversion of
one unit of transformer to be installed and energized to supply respondents power
requirements.38 This project was embodied in three (3) job orders, all of which were
awarded to petitioner who represented itself to be capable, competent, and duly
licensed to handle the projects.39 Petitioner, however, failed to complete the projects
within the agreed period allegedly because of misrepresentation and fraud committed
by respondent as to the true nature of the subject transformer. The trial court found
that respondent indeed failed to inform petitioner of the true condition of the
transformer which amounted to fraud thereby justifying the latters failure to complete
the projects. The CA, however, had a different conclusion and decided in favor of
respondent. Ultimately, the issue before us is whether or not there was breach of
contract which essentially is a factual matter not usually reviewable in a petition filed
under Rule 45.40
In resolving the issues, the Court inquires into the probative value of the evidence
presented before the trial court.41 Petitioner, indeed, endeavors to convince us to
determine once again the weight, credence, and probative value of the evidence
presented before the trial court.42 While in general, the findings of fact of the CA are
final and conclusive and cannot be reviewed on appeal to the Court because it is not a
trier of facts,43 there are recognized exceptions44 as when the findings of fact are
conflicting, which is obtaining in this case. The conflicting conclusions of the trial and
appellate courts impel us to re-examine the evidence presented.

After a thorough review of the records of the case, we find no reason to depart from
the conclusions of the CA.
It is undisputed that petitioner and respondent entered into a contract for the supply of
labor, materials, and technical supervision primarily for the rewinding and conversion of
one (1) unit of transformer and related works aimed at providing the power needs of
respondent. As agreed upon by the parties, the projects were to be completed within
120 days from the effectivity of the contract. Admittedly, however, respondent failed,
not only to perform its part of the contract on time but, in fact, to complete the projects.
Petitioner tried to exempt itself from the consequences of said breach by passing the
fault to respondent. It explained that its failure to complete the project was due to the
misrepresentation of the respondent. It claimed that more time and money were
needed, because the condition of the subject transformer was worse than the
representations of respondent. Is this defense tenable?
We answer in the negative.
Records show that petitioner indeed asked for price adjustment and extension of time
within which to complete the projects. In its letter45 dated March 9, 1991, petitioner
anchored its request for extension on the following grounds:
1. To maximize the existing 3125 KVA to 4000 KVA capacity using the same
core, we will replace the secondary windings from rectangular type to copper
sheet which is more accurate in winding to the required number of turns than
using parallel rectangular or circular type of copper magnet wires. However,
these copper sheets are not readily available locally in volume quantities, and
therefore, we will be importing this material and it will take 60 days minimum
time for its delivery.
2. We also find it difficult to source locally the replacement for the damaged
high voltage bushing.
3. The delivery of power cable no. 2/0 will also be delayed. This will take 90
days to deliver from January 1991.46
Also in its letter47 dated March 27, 1991, petitioner informed respondent that the
projects would be completed within the contract time table but explained that the
delivery of the transformer would only be delayed. The reasons advanced by petitioner
to justify the delay are as follows:
1. Our supplier for copper sheets cannot complete the delivery until April 30,
1991.
2. Importation of HV Bushing will take approximately 45 days delivery per
advice of our supplier. x x x48

Clearly, in the above letters, petitioner justified its inability to complete the projects
within the stipulated period on the alleged unavailability of the materials to be used to
perform the projects as stated in the job orders. Nowhere in said letters did petitioner
claim that it could not finish the projects, particularly the conversion of the transformer
unit because the defects were worse than the representation of respondent. In other
words, there was no allegation of fraud, bad faith, concealment or misrepresentation
on the part of respondent as to the true condition of the subject transformer. Even in its
letter49 dated May 25, 1991, petitioner only requested respondent that payment to the
first progress billing be released as soon as possible and without deduction. It further
proposed that respondent make a direct payment to petitioners suppliers.
It was only in its June 14, 1991 letter50 when petitioner raised its observations that the
subject transformer needed more repairs than what it knew during the bidding. 51 In the
same letter, however, petitioner repeated its request that direct payment be made by
respondent to petitioners suppliers.52 More importantly, petitioner admitted that it made
a judgment error when it quoted for only P440,770.00 for the contract relating to J.O.
#P-90-214 based on limited information.
It can be inferred from the foregoing facts that there was not only a delay but a failure
to complete the projects as stated in the contract; that petitioner could not complete the
projects because it did not have the materials needed; and that it is in need of financial
assistance.
As the Court sees it, the bid submitted by petitioner may have been sufficient to be
declared the winner but it failed to anticipate all expenses necessary to complete the
projects. 53 When it incurred expenses it failed to foresee, it began requesting for price
adjustment to cover the cost of high voltage bushing and difference in cost of copper
sheet and rectangular wire.54 However, the scope of work presented by respondent
specifically stated that the wires to be used shall be pure copper and that there was a
need to supply new bushings for the complete rewinding and conversion of 3125 KVA
to 4 MVA Transformer.55 In other words, petitioner was aware that there was a need for
complete replacement of windings to copper and of secondary bushings. 56 It is,
therefore, improper for petitioner to ask for additional amount to answer for the
expenses that were already part and parcel of the undertaking it was bound to perform.
For petitioner, the contract entered into may have turned out to be an unwise
investment, but there is no one to blame but petitioner for plunging into an undertaking
without fully studying it in its entirety.57
The Court likewise notes that petitioner repeatedly asked for extension allegedly
because it needed to import the materials and that the same could not be delivered on
time. Petitioner also repeatedly requested that respondent make a direct payment to
the suppliers notwithstanding the fact that it contracted with respondent for the supply
of labor, materials, and technical supervision. It is, therefore, expected that petitioner
would be responsible in paying its suppliers because respondent is not privy to their
(petitioner and its suppliers) contract. This is especially true in this case since
respondent had already made advance payments to petitioner. It appears, therefore,
that in offering its bid, the source and cost of materials were not seriously taken into

consideration. It appears, further, that petitioner had a hard time in fulfilling its
obligations under the contract that is why it asked for financial assistance from
respondent. This is contrary to petitioners representation that it was capable,
competent, and duly licensed to handle the projects.
As to the alleged damaged condition of the subject transformer, we quote with
approval the CA conclusion in this wise:
In the same vein, We cannot readily accept the testimony of Tomas that the
transformer unit was severely damaged and was beyond repair as it was not
substantiated with any other evidence. R.S. Tomas could have presented an
independent expert witness whose opinion may corroborate its stance that the
transformer unit was indeed incapable of being restored. To our mind, the testimony of
Tomas is self-serving as it is easy to concoct, yet difficult to verify.58
This lack of evidence, coupled with petitioners failure to raise the same at the earliest
opportunity, belies petitioners claim that it could not complete the projects because the
subject transformer could no longer be repaired.
Assuming for the sake of argument that the subject transformer was indeed in a
damaged condition even before the bidding which makes it impossible for petitioner to
perform its obligations under the contract, we also agree with the CA that petitioner
failed to prove that respondent was guilty of bad faith, fraud, deceit or
misrepresentation.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill will that partakes of the nature of
fraud.59 Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot with an evil or
devious purpose. Deceit exists where the party, with intent to deceive, conceals or
omits to state material facts and, by reason of such omission or concealment, the other
party was induced to give consent that would not otherwise have been given.60 These
are allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they are
never presumed.61 In this case, the evidence presented is insufficient to prove that
respondent acted in bad faith or fraudulently in dealing with petitioner.1wphi1
Petitioner in fact admitted that its representatives were given the opportunity to inspect
the subject transformer before it offered its bid. If indeed the transformer was
completely sealed, it should have demanded that the same be opened if it found it
necessary before it offered its bid. As contractor, petitioner had been remiss in its
obligation to obtain as much information as possible on the actual condition of the
subject transformer or at least it should have provided a qualification in its bid so as to
make clear its right to claim contract price and time adjustment.62 As aptly held by the
CA, considering that petitioner is a company engaged in the electrical business and

the contract it had entered into involved a sizable amount of money, its failure to
conduct an inspection of the subject transformer is inexcusable.63
In sum, the evidence presented by the parties lead to the following conclusions: (1)
that the projects were not completed by petitioner; (2) that petitioner was given the
opportunity to inspect the subject transformer; (3) that petitioner failed to thoroughly
study the entirety of the projects before it offered its bid; (4) that petitioner failed to
complete the projects because of the unavailability of the required materials and that
petitioner needed financial assistance; (5) that the evidence presented by petitioner
were inadequate to prove that the subject transformer could no longer be repaired; and
(6) that there was no evidence to show that respondent was in bad faith, acted
fraudulently, or guilty of deceit and misrepresentation in dealing with petitioner.
In view of the foregoing disquisitions, we find that there was not only delay but noncompletion of the projects undertaken by petitioner without justifiable ground.
Undoubtedly, petitioner is guilty of breach of contract. Breach of contract is defined as
the failure without legal reason to comply with the terms of a contract. It is also defined
as the failure, without legal excuse, to perform any promise which forms the whole or
part of the contract.64 In the present case, petitioner did not complete the projects. This
gives respondent the right to terminate the contract by serving petitioner a written
notice. The contract specifically stated that it may be terminated for any of the following
causes:

accomplishment was not adequately shown by petitioner. Hence, we apply the general
rule not to ignore the freedom of the parties to agree on such terms and conditions as
they see fit as long as they are not contrary to law, morals, good customs, public order
or public policy.68 Thus, as agreed upon by the parties, we apply the 10% liquidated
damages.
Considering that petitioner was already in delay and in breach of contract, it is liable for
damages that are the natural and probable consequences of its breach of
obligation.69 Since advanced payments had been made by respondent, petitioner is
bound to return the excess vis--vis its work accomplishments. In order to finish the
projects, respondent had to contract the services of another contractor. We, therefore,
find no reason to depart from the CA conclusion requiring the return of the excess
payments as well as the payment of the cost of contracting Geostar, in addition to
liquidated damages.70
WHEREFORE, premises considered, the petition is hereby DENIED. The Court of
Appeals Decision dated December 19, 2005 and Resolution dated June 6, 2006 in CAG.R. CV No. 61049 are AFFIRMED.
SO ORDERED.

1. Violation by Contractor of the terms and conditions of this Contract;

2. Non-completion of the Work within the time agreed upon, or upon the
expiration of extension agreed upon;
3. Institution of insolvency or receivership proceedings involving Contractor;
and
4. Other causes provided by law applicable to this contract.65
Consequently, and pursuant to the agreement of the parties,66 petitioner is liable for
liquidated damages in the amount of P29,440.00 per day of delay, which shall be
limited to a maximum of 10% of the project cost orP294,400.00. In this case, petitioner
bound itself to complete the projects within 120 days from December 29, 1990.
However, petitioner failed to fulfill the same prompting respondent to engage the
services of another contractor on November 14, 1991. Thus, despite the lapse of
eleven months from the time of the effectivity of the contract entered into between
respondent and petitioner, the latter had not completed the projects. Undoubtedly,
petitioner may be held to answer for liquidated damages in its maximum amount which
is 10% of the contract price. While we have reduced the amount of liquidated damages
in some cases,67 because of partial fulfillment of the contract and/or the amount is
unconscionable, we do not find the same to be applicable in this case. It must be
recalled that the contract entered into by petitioner consists of three projects, all of
which were not completed by petitioner. Moreover, the percentage of work

RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,

vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION, J.:

Before the Court is the petition for review on certiorari1 filed under Rule 45 of the Rules
of Court, assailing the decision2 dated July 30, 2009 and the resolution3 dated
February 19, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 86083. The CA
rulings affirmed with modification the decision dated September 27, 2004 of the
Regional Trial Court (RTC) of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-99146 which granted respondent Atty. Delfin Grupes claim for payment of sum of money
against petitioners Rodolfo G. Cruz and Esperanza Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October 24, 1999, when the mini
bus owned and operated by Cruz and driven by one Arturo Davin collided with the
Toyota Corolla car of Gruspe; Gruspes car was a total wreck. The next day, on
October 25, 1999, Cruz, along with Leonardo Q. Ibias went to Gruspes office,
apologized for the incident, and executed a Joint Affidavit of Undertaking promising
jointly and severally to replace the Gruspes damaged car in 20 days, or until
November 15, 1999, of the same model and of at least the same quality; or,
alternatively, they would pay the cost of Gruspes car amounting to P350,000.00, with
interest at
12% per month for any delayed payment after November 15, 1999, until fully
paid.5 When Cruz and Leonardo failed to comply with their undertaking, Gruspe filed a
complaint for collection of sum of money against them on November 19, 1999 before
the RTC.
In their answer, Cruz and Leonardo denied Gruspes allegation, claiming that Gruspe,
a lawyer, prepared the Joint Affidavit of Undertaking and forced them to affix their
signatures thereon, without explaining and informing them of its contents; Cruz affixed
his signature so that his mini bus could be released as it was his only means of
income; Leonardo, a barangay official, accompanied Cruz to Gruspes office for the
release of the mini bus, but was also deceived into signing the Joint Affidavit of
Undertaking.
Leonardo died during the pendency of the case and was substituted by his widow,
Esperanza. Meanwhile, Gruspe sold the wrecked car for P130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of Gruspe and ordered
Cruz and Leonardo to pay P220,000.00,6 plus 15% per annum from November 15,
1999 until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the interest rate to 12% per
annum pursuant to the Joint Affidavit of Undertaking.7 It declared that despite its title,
the Joint Affidavit of Undertaking is a contract, as it has all the essential elements of
consent, object certain, and consideration required under Article 1318 of the Civil

Code. The CA further said that Cruz and Leonardo failed to present evidence to
support their contention of vitiated consent. By signing the Joint Affidavit of
Undertaking, they voluntarily assumed the obligation for the damage they caused to
Gruspes car; Leonardo, who was not a party to the incident, could have refused to
sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza assail the CA ruling,
contending that the Joint Affidavit of Undertaking is not a contract that can be the basis
of an obligation to pay a sum of money in favor of Gruspe. They consider an affidavit
as different from a contract: an affidavits purpose is simply to attest to facts that are
within his knowledge, while a contract requires that there be a meeting of the minds
between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a contract, Cruz and
Esperanza claim that it is invalid because Cruz and Leonardos consent thereto was
vitiated; the contract was prepared by Gruspe who is a lawyer, and its contents were
never explained to them. Moreover, Cruz and Leonardo were simply forced to affix
their signatures, otherwise, the mini van would not be released.
Also, they claim that prior to the filing of the complaint for sum of money, Gruspe did
not make any demand upon them. Hence, pursuant to Article 1169 of the Civil Code,
they could not be considered in default. Without this demand, Cruz and Esperanza
contend that Gruspe could not yet take any action.
THE COURTS RULING
The Court finds the petition partly meritorious and accordingly modifies the judgment of
the CA.
Contracts are obligatory no matter what their forms may be, whenever the essential
requisites for their validity are present. In determining whether a document is an
affidavit or a contract, the Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not conclusive of the
nature of its contents.8 In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the terms of the document
are clear and leave no doubt on the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the words appear to be contrary to the
parties evident intention, the latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that
it contains stipulations characteristic of a contract. As quoted in the CA decision,10 the
Joint Affidavit of Undertaking contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20 days from October 25, 1999 or up
to November 15, 1999, of the same model and of at least the same quality. In the

event that they cannot replace the car within the same period, they would pay the cost
of Gruspes car in the total amount ofP350,000.00, with interest at 12% per month for
any delayed payment after November 15, 1999, until fully paid. These, as read by the
CA, are very simple terms that both Cruz and Leonardo could easily understand.

WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the resolution dated
February 19, 2010 of the Court of Appeals in CA-G.R. CV No. 86083, subject to the
Modification that the twelve percent (12%) per annum interest imposed on the amount
due shall accrue only from November 19, 1999, when judicial demand was made.

There is also no merit to the argument of vitiated consent.1wphi1 An allegation of

vitiated consent must be proven by preponderance of evidence; Cruz and Leonardo
failed to support their allegation.

SO ORDERED.

Although the undertaking in the affidavit appears to be onerous and lopsided, this does
not necessarily prove the alleged vitiation of consent. They, in fact, admitted the
genuineness and due execution of the Joint Affidavit and Undertaking when they said
that they signed the same to secure possession of their vehicle. If they truly believed
that the vehicle had been illegally impounded, they could have refused to sign the Joint
Affidavit of Undertaking and filed a complaint, but they did not. That the release of their
mini bus was conditioned on their signing the Joint Affidavit of Undertaking does not,
by itself, indicate that their consent was forced they may have given it grudgingly, but
it is not indicative of a vitiated consent that is a ground for the annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint Affidavit of Undertaking,
the CA did not commit any legal error that merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which is material in the
computation of interest on the amount due. The RTC ordered Cruz and Leonardo to
pay Gruspe "P350,000.00 as cost of the car xxx plus fifteen percent (15%) per annum
from November 15, 1999 until fully paid."11 The 15% interest (later modified by the CA
to be 12%) was computed from November 15, 1999 the date stipulated in the Joint
Affidavit of Undertaking for the payment of the value of Gruspes car. In the absence of
a finding by the lower courts that Gruspe made a demand prior to the filing of the
complaint, the interest cannot be computed from November 15, 1999 because until a
demand has been made, Cruz and Leonardo could not be said to be in default.12 "In
order that the debtor may be in default, it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance judicially
and extrajudicially."13 Default generally begins from the moment the creditor demands
the performance of the obligation. In this case, demand could be considered to have
been made upon the filing of the complaint on November 19, 1999, and it is only from
this date that the interest should be computed.
Although the CA upheld the Joint Affidavit of Undertaking, we note that it imposed
interest rate on a per annum basis, instead of the per month basis that was stated in
the Joint Affidavit of Undertaking without explaining its reason for doing so.14 Neither
party, however, questioned the change. Nonetheless, the Court affirms the change in
the interest rate from 12% per month to 12% per annum, as we find the interest rate
agreed upon in the Joint Affidavit of Undertaking excessive.15

FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by her

husband, FRANKLIN G. GACAL, petitioners,
vs.
PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON C.
ANIMAS, in his capacity as PRESIDING JUDGE of the COURT OF FIRST
INSTANCE OF SOUTH COTABATO, BRANCH I, respondents.
PARAS, J.:
This is a, petition for review on certiorari of the decision of the Court of First Instance of
South Cotabato, Branch 1, * promulgated on August 26, 1980 dismissing three (3)
consolidated cases for damages: Civil Case No. 1701, Civil Case No. 1773 and Civil
Case No. 1797 (Rollo, p. 35).
The facts, as found by respondent court, are as follows:
Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal,
Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the late
Elma de Guzman, were then passengers boarding defendant's BAC
1-11 at Davao Airport for a flight to Manila, not knowing that on the
same flight, Macalinog, Taurac Pendatum known as Commander
Zapata, Nasser Omar, Liling Pusuan Radia, Dimantong Dimarosing
and Mike Randa, all of Marawi City and members of the Moro
National Liberation Front (MNLF), were their co-passengers, three
(3) armed with grenades, two (2) with .45 caliber pistols, and one
with a .22 caliber pistol. Ten (10) minutes after take off at about 2:30
in the afternoon, the hijackers brandishing their respective firearms
announced the hijacking of the aircraft and directed its pilot to fly to
Libya. With the pilot explaining to them especially to its leader,
Commander Zapata, of the inherent fuel limitations of the plane and
that they are not rated for international flights, the hijackers directed
the pilot to fly to Sabah. With the same explanation, they relented
and directed the aircraft to land at Zamboanga Airport, Zamboanga
City for refueling. The aircraft landed at 3:00 o'clock in the afternoon
of May 21, 1976 at Zamboanga Airport. When the plane began to
taxi at the runway, it was met by two armored cars of the military with
machine guns pointed at the plane, and it stopped there. The rebels
thru its commander demanded that a DC-aircraft take them to Libya
with the President of the defendant company as hostage and that
they be given $375,000 and six (6) armalites, otherwise they will
blow up the plane if their demands will not be met by the government
and Philippine Air Lines. Meanwhile, the passengers were not
served any food nor water and it was only on May 23, a Sunday, at

about 1:00 o'clock in the afternoon that they were served 1/4 slice of
a sandwich and 1/10 cup of PAL water. After that, relatives of the
hijackers were allowed to board the plane but immediately after they
alighted therefrom, an armored car bumped the stairs. That
commenced the battle between the military and the hijackers which
led ultimately to the liberation of the surviving crew and the
passengers, with the final score of ten (10) passengers and three (3)
hijackers dead on the spot and three (3) hijackers captured.
City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal
suffered injuries in the course of her jumping out of the plane when it
was peppered with bullets by the army and after two (2) hand
grenades exploded inside the plane. She was hospitalized at
General Santos Doctors Hospital, General Santos City, for two (2)
days, spending P245.60 for hospital and medical expenses,
Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but
Mrs. Anislag suffered a fracture at the radial bone of her left elbow
for which she was hospitalized and operated on at the San Pedro
Hospital, Davao City, and therefore, at Davao Regional Hospital,
Davao City, spending P4,500.00. Elma de Guzman died because of
that battle. Hence, the action of damages instituted by the plaintiffs
demanding the following damages, to wit:
Civil Case No. 1701
City Fiscal Franklin G. Gacal and Mrs. Corazon M.
Gacal actual damages: P245.60 for hospital
and medical expenses of Mrs Gacal; P8,995.00 for
their personal belongings which were lost and not
recovered; P50,000.00 each for moral damages;
and P5,000.00 for attorney's fees, apart from the
prayer for an award of exemplary damages
(Record, pp. 4-6, Civil Case No. 1701).
Civil Case No. 1773
xxx xxx xxx
Civil Case No. 1797
xxx xxx xxx
The trial court, on August 26, 1980, dismissed the complaints finding that all the
damages sustained in the premises were attributed to force majeure.

On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal,
plaintiffs in Civil Case No. 1701, filed a notice of appeal with the lower court on pure
questions of law (Rollo, p. 55) and the petition for review oncertiorari was filed with this
Court on October 20, 1980 (Rollo, p. 30).
The Court gave due course to the petition (Rollo, p. 147) and both parties filed their
respective briefs but petitioner failed to file reply brief which was noted by the Court in
the resolution dated May 3, 1982 (Rollo, p. 183).
Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton
and inexcusable negligence of respondent Airline personnel in their failure to frisk the
passengers adequately in order to discover hidden weapons in the bodies of the six (6)
hijackers. They claimed that despite the prevalence of skyjacking, PAL did not use a
metal detector which is the most effective means of discovering potential skyjackers
among the passengers (Rollo, pp. 6-7).
Respondent Airline averred that in the performance of its obligation to safely transport
passengers as far as human care and foresight can provide, it has exercised the
utmost diligence of a very cautious person with due regard to all circumstances, but
the security checks and measures and surveillance precautions in all flights, including
the inspection of baggages and cargo and frisking of passengers at the Davao Airport
were performed and rendered solely by military personnel who under appropriate
authority had assumed exclusive jurisdiction over the same in all airports in the
Philippines.
Similarly, the negotiations with the hijackers were a purely government matter and a
military operation, handled by and subject to the absolute and exclusive jurisdiction of
the military authorities. Hence, it concluded that the accident that befell RP-C1161 was
caused by fortuitous event, force majeure and other causes beyond the control of the
respondent Airline.
The determinative issue in this case is whether or not hijacking or air piracy during
martial law and under the circumstances obtaining herein, is
a caso fortuito or force majeure which would exempt an aircraft from payment of
damages to its passengers whose lives were put in jeopardy and whose personal
belongings were lost during the incident.
Under the Civil Code, common carriers are required to exercise extraordinary diligence
in their vigilance over the goods and for the safety of passengers transported by them,
according to all the circumstances of each case (Article 1733). They are presumed at
fault or to have acted negligently whenever a passenger dies or is injured (Philippine
Airlines, Inc. v. National Labor Relations Commission, 124 SCRA 583 [1983]) or for the
loss, destruction or deterioration of goods in cases other than those enumerated in
Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court, 150 SCRA 463 [1987]).

The source of a common carrier's legal liability is the contract of carriage, and by
entering into said contract, it binds itself to carry the passengers safely as far as
human care and foresight can provide. There is breach of this obligation if it fails to
exert extraordinary diligence according to all the circumstances of the case in exercise
of the utmost diligence of a very cautious person (Isaac v. Ammen Transportation Co.,
101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]).
It is the duty of a common carrier to overcome the presumption of negligence
(Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be
shown that the carrier had observed the required extraordinary diligence of a very
cautious person as far as human care and foresight can provide or that the accident
was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523 [1976]). Thus,
as ruled by this Court, no person shall be responsible for those "events which could
not be foreseen or which though foreseen were inevitable. (Article 1174, Civil Code).
The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which
is of the same sense as "force majeure" (Words and Phrases Permanent Edition, Vol.
17, p. 362).
In order to constitute a caso fortuito or force majeure that would exempt a person from
liability under Article 1174 of the Civil Code, it is necessary that the following elements
must concur: (a) the cause of the breach of the obligation must be independent of the
human will (the will of the debtor or the obligor); (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free
from any participation in, or aggravation of the injury to the creditor (Lasam v. Smith,
45 Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v.
Consolacion, supra; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F.
Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Caso fortuito or force
majeure, by definition, are extraordinary events not foreseeable or avoidable, events
that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore,
not enough that the event should not have been foreseen or anticipated, as is
commonly believed, but it must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to foresee the same (Republic v.
Luzon Stevedoring Corporation, 21 SCRA 279 [1967]).
Applying the above guidelines to the case at bar, the failure to transport petitioners
safely from Davao to Manila was due to the skyjacking incident staged by six (6)
passengers of the same plane, all members of the Moro National Liberation Front
(MNLF), without any connection with private respondent, hence, independent of the
will of either the PAL or of its passengers.
Under normal circumstances, PAL might have foreseen the skyjacking incident which
could have been avoided had there been a more thorough frisking of passengers and
inspection of baggages as authorized by R.A. No. 6235. But the incident in question
occurred during Martial Law where there was a military take-over of airport security
including the frisking of passengers and the inspection of their luggage preparatory to
boarding domestic and international flights. In fact military take-over was specifically

announced on October 20, 1973 by General Jose L. Rancudo, Commanding General

of the Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the
Civil Aeronautics Administration (Rollo, pp. 71-72) later confirmed shortly before the
hijacking incident of May 21, 1976 by Letter of Instruction No. 399 issued on April 28,
1976 (Rollo, p. 72).
Otherwise stated, these events rendered it impossible for PAL to perform its obligations
in a nominal manner and obviously it cannot be faulted with negligence in the
performance of duty taken over by the Armed Forces of the Philippines to the exclusion
of the former.
Finally, there is no dispute that the fourth element has also been satisfied.
Consequently the existence of force majeure has been established exempting
respondent PAL from the payment of damages to its passengers who suffered death or
injuries in their persons and for loss of their baggages.
PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the
decision of the Court of First Instance of South Cotabato, Branch I is hereby
AFFIRMED.
SO ORDERED.
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and PEDRO ZAPATOS, respondents.
Leighton R. Liazon for petitioner.
Balmes L. Ocampo for private respondent.

BELLOSILLO, J.:
This petition for review in certiorari seeks to annul and set aside the decision of the
then Intermediate Appellant Court, 1 now Court of Appeals, dated 28 February 1985, in
AC-G.R. CV No. 69327 ("Pedro Zapatos v. Philippine Airlines, Inc.") affirming the
decision of the then Court of first Instance, now Regional Trial Court, declaring
Philippine Airlines, Inc., liable in damages for breach of contract.
On 25 November 1976, private respondent filed a complaint for damages for breach of
contract of carriage 2against Philippine Airlines, Inc. (PAL), before the then Court of
First Instance, now Regional Trial Court, of Misamis Occidental, at Ozamiz City.
According to him, on 2 August 1976, he was among the twenty-one (21) passengers of
PAL Flight 477 that took off from Cebu bound for Ozamiz City. The routing of this flight

was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes before
landing at Ozamiz City, the pilot received a radio message that the airport was closed
due to heavy rains and inclement weather and that he should proceed to Cotabato City
instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their
options to return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4
August 1975, or take the next flight to Cebu the following day, or remain at Cotabato
and take the next available flight to Ozamiz City on 5 August 1975. 3 The Station Agent
likewise informed them that Flight 560 bound for Manila would make a stop-over at
Cebu to bring some of the diverted passengers; that there were only six (6) seats
available as there were already confirmed passengers for Manila; and, that the basis
for priority would be the check-in sequence at Cebu.
Private respondent chose to return to Cebu but was not accommodated because he
checked-in as passenger No. 9 on Flight 477. He insisted on being given priority over
the confirmed passengers in the accommodation, but the Station Agent refused private
respondent's demand explaining that the latter's predicament was not due to PAL's
own doing but to be a force majeure. 4
Private respondent tried to stop the departure of Flight 560 as his personal belongings,
including a package containing a camera which a certain Miwa from Japan asked him
to deliver to Mrs. Fe Obid of Gingoog City, were still on board. His plea fell on deaf
ears. PAL then issued to private respondent a free ticket to Iligan city, which the latter
received under protest. 5 Private respondent was left at the airport and could not even
hitch a ride in the Ford Fiera loaded with PAL personnel. 6 PAL neither provided private
respondent with transportation from the airport to the city proper nor food and
accommodation for his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan City. He
informed PAL personnel that he would not use the free ticket because he was filing a
case against PAL. 7 In Iligan City, private respondent hired a car from the airport to
Kolambugan, Lanao del Norte, reaching Ozamiz City by crossing the bay in a
launch. 8 His personal effects including the camera, which were valued at P2,000.00
were no longer recovered.
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to
accommodate private respondent. 9 It alleged that there was simply no more seat for
private respondent on Flight 560 since there were only six (6) seats available and the
priority of accommodation on Flight 560 was based on the check-in sequence in Cebu;
that the first six (6) priority passengers on Flight 477 chose to take Flight 560; that its
Station Agent explained in a courteous and polite manner to all passengers the reason
for PAL's inability to transport all of them back to Cebu; that the stranded passengers
agreed to avail of the options and had their respective tickets exchanged for their
onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation;
that pieces of checked-in baggage and had carried items of the Ozamiz City

passengers were removed from the aircraft; that the reason for their pilot's inability to
land at Ozamis City airport was because the runway was wet due to rains thus posing
a threat to the safety of both passengers and aircraft; and, that such reason of force
majeure was a valid justification for the pilot to bypass Ozamiz City and proceed
directly to Cotabato City.

on a question nor proved at the trial? (2) Can the Court of Appeals award actual and
moral damages contrary to the evidence and established jurisprudence? 13

On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which
states:

In its petition, PAL vigorously maintains that private respondent's principal cause of
action was its alleged denial of private respondent's demand for priority over the
confirmed passengers on Flight 560. Likewise, PAL points out that the complaint did
not impute to PAL neglect in failing to attend to the needs of the diverted passengers;
and, that the question of negligence was not and never put in issue by the pleadings or
proved at the trial.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff

and against the defendant Philippine AirLines, Inc. ordering the latter
to pay:
(1) As actual damages, the sum of Two Hundred Pesos (P200.00)
representing plaintiff's expenses for transportation, food and
accommodation during his stranded stay at Cotabato City; the sum
of Forty-Eight Pesos (P48.00) representing his flight fare from
Cotabato City to Iligan city; the sum of Five Hundred Pesos
(P500.00) representing plaintiff's transportation expenses from Iligan
City to Ozamiz City; and the sum of Five Thousand Pesos
(P5,000.00) as loss of business opportunities during his stranded
stay in Cotabato City;
(2) As moral damages, the sum of Fifty Thousand Pesos
(P50,000.00) for plaintiff's hurt feelings, serious anxiety, mental
anguish and unkind and discourteous treatment perpetrated by
defendant's employees during his stay as stranded passenger in
Cotabato City;

An assiduous examination of the records yields no valid reason for reversal of the
judgment on appeal; only a modification of its disposition.

Contrary to the above arguments, private respondent's amended complaint touched on

PAL's indifference and inattention to his predicament. The pertinent portion of the
amended complaint 14 reads:
10. That by virtue of the refusal of the defendant through its agent in
Cotabato to accommodate (sic) and allow the plaintiff to take and
board the plane back to Cebu, and by accomodating (sic) and
allowing passengers from Cotabato for Cebu in his stead and place,
thus forcing the plaintiff against his will, to be left and stranded in
Cotabato, exposed to the peril and danger of muslim rebels
plundering at the time, the plaintiff, as a consequence, (have)
suffered mental anguish, mental torture, social humiliation,
bismirched reputation and wounded feeling, all amounting to a
conservative amount of thirty thousand (P30,000.00) Pesos.
To substantiate this aspect of apathy, private respondent testified 15

(3) As exemplary damages, the sum of Ten Thousand Pesos

(P10,000.00) to set a precedent to the defendant airline that it shall
provide means to give comfort and convenience to stranded
passengers;
(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's
fees;

A I did not even notice that I was I think the last

passenger or the last person out of the PAL
employees and army personnel that were left
there. I did not notice that when I was already
outside of the building after our conversation.
Q What did you do next?

(5) To pay the costs of this suit.

PAL appealed to the Court of Appeals which on 28 February 1985, finding no
reversible error, affirmed the judgment of the court a quo. 11
PAL then sought recourse to this Court by way of a petition for review
on certiorari 12 upon the following issues: (1) Can the Court of Appeals render a
decision finding petitioner (then defendant-appellant in the court below) negligent and,
consequently, liable for damages on a question of substance which was neither raised

A I banished (sic) because it seems that there was

a war not far from the airport. The sound of guns
and the soldiers were plenty.
Q After that what did you do?
A I tried to look for a transportation that could bring
me down to the City of Cotabato.

Q Were you able to go there?

A Yes.

A I was at about 7:00 o'clock in the evening more

or less and it was a private jeep that I boarded. I
was even questioned why I and who am (sic) I
then. Then I explained my side that I am (sic)
stranded passenger. Then they brought me
downtown at Cotabato.

Q Did you ask them to help you regarding any

offer of transportation or of any other matter asked
of them?

Q During your conversation with the Manager

were you not offered any vehicle or transportation
to Cotabato airport downtown?

Q Are you not aware that one fellow passenger

even claimed that he was given Hotel
accommodation because they have no money?

A In fact I told him (Manager) now I am by-passed

passenger here which is not my destination what
can you offer me. Then they answered, "it is not
my fault. Let us forget that."
Q In other words when the Manager told you that
offer was there a vehicle ready?
A Not yet. Not long after that the Ford Fiera loaded
with PAL personnel was passing by going to the
City of Cotabato and I stopped it to take me a ride
because there was no more available
transportation but I was not accommodated.
Significantly, PAL did not seem to mind the introduction of evidence which focused on
its alleged negligence in caring for its stranded passengers. Well-settled is the rule in
evidence that the protest or objection against the admission of evidence should be
presented at the time the evidence is offered, and that the proper time to make protest
or objection to the admissibility of evidence is when the question is presented to the
witness or at the time the answer thereto is given. 16 There being no objection, such
evidence becomes property of the case and all the parties are amenable to any
favorable or unfavorable effects resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to
substantiate its counter allegation for want of concrete proof 18

A Yes, he (PAL PERSONNEL) said what is? It is

not our fault.

xxx xxx xxx

A No, sir, that was never offered to me. I said, I
tried to stop them but they were already riding that
PAL pick-up jeep, and I was not accommodated.
Having joined in the issue over the alleged lack of care it exhibited towards its
passengers, PAL cannot now turn around and feign surprise at the outcome of the
case. When issues not raised by the pleadings are tried by express or implied consent
of the parties, they shall be treated in all respects as if they had been raised in the
pleadings. 19
With regard to the award of damages affirmed by the appellate court, PAL argues that
the same is unfounded. It asserts that it should not be charged with the task of looking
after the passengers' comfort and convenience because the diversion of the flight was
due to a fortuitous event, and that if made liable, an added burden is given to PAL
which is over and beyond its duties under the contract of carriage. It submits that
granting arguendo that negligence exists, PAL cannot be liable in damages in the
absence of fraud or bad faith; that private respondent failed to apprise PAL of the
nature of his trip and possible business losses; and, that private respondent himself is
to be blamed for unreasonably refusing to use the free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being imbued with public interest, the law
requires common carriers to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances. 20 In Air France v. Carrascoso, 21 we held that

Atty. Rubin O. Rivera PAL's counsel:

Q You said PAL refused to help you when you
were in Cotabato, is that right?
Private respondent:

A contract to transport passengers is quite different in kind and

degree from any other contractual relation. And this, because of the
relation which an air carrier sustains with the public. Its business is
mainly with the travelling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage,

therefore, generates a relation attended with a public duty . . . .

( emphasis supplied).
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting
standard required by law. Undisputably, PAL's diversion of its flight due to inclement
weather was a fortuitous event. Nonetheless, such occurrence did not terminate PAL's
contract with its passengers. Being in the business of air carriage and the sole one to
operate in the country, PAL is deemed equipped to deal with situations as in the case
at bar. What we said in one case once again must be stressed, i.e., the relation of
carrier and passenger continues until the latter has been landed at the port of
destination and has left the carrier's premises. 22 Hence, PAL necessarily would still
have to exercise extraordinary diligence in safeguarding the comfort, convenience and
safety of its stranded passengers until they have reached their final destination. On this
score, PAL grossly failed considering the then ongoing battle between government
forces and Muslim rebels in Cotabato City and the fact that the private respondent was
a stranger to the place. As the appellate court correctly ruled
While the failure of plaintiff in the first instance to reach his
destination at Ozamis City in accordance with the contract of
carriage was due to the closure of the airport on account of rain and
inclement weather which was radioed to defendant 15 minutes
before landing, it has not been disputed by defendant airline that
Ozamis City has no all-weather airport and has to cancel its flight to
Ozamis City or by-pass it in the event of inclement weather. Knowing
this fact, it becomes the duty of defendant to provide all means of
comfort and convenience to its passengers when they would have to
be left in a strange place in case of such by-passing. The steps
taken by defendant airline company towards this end has not been
put in evidence, especially for those 7 others who were not
accommodated in the return trip to Cebu, only 6 of the 21 having
been so accommodated. It appears that plaintiff had to leave on the
next flight 2 days later. If the cause of non-fulfillment of the contract
is due to a fortuitous event, it has to be the sole and only cause (Art.
1755 CC., Art. 1733 C.C.) Since part of the failure to comply with the
obligation of common carrier to deliver its passengers safely to their
destination lay in the defendant's failure to provide comfort and
convenience to its stranded passengers using extra-ordinary
diligence, the cause of non-fulfillment is not solely and exclusively
due to fortuitous event, but due to something which defendant airline
could have prevented, defendant becomes liable to plaintiff. 23
While we find PAL remiss in its duty of extending utmost care to private respondent
while being stranded in Cotabato City, there is no sufficient basis to conclude that PAL
failed to inform him about his non-accommodation on Flight 560, or that it was
inattentive to his queries relative thereto.

On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City
that
3. Of the fifteen stranded passengers two pax elected to take F478
on August 05, three pax opted to take F442 August 03. The
remaining ten (10) including subject requested that they be instead
accommodated (sic) on F446 CBO-IGN the following day where they
intended to take the surface transportation to OZC. Mr. Pedro
Zapatos had by then been very vocal and boiceterous (sic) at the
counter and we tactfully managed to steer him inside the Station
Agent's office. Mr. Pedro Zapatos then adamantly insisted that all the
diverted passengers should have been given priority over the
originating passengers of F560 whether confirmed or otherwise. We
explained our policies and after awhile he seemed pacified and
thereafter took his ticket (in-lieued (sic) to CBO-IGN, COCON basis),
at the counter in the presence of five other passengers who were
waiting for their tickets too. The rest of the diverted pax had left
earlier after being assured their tickets will be ready the following
day. 24
Aforesaid Report being an entry in the course of business is prima facie evidence of
the facts therein stated. Private respondent, apart from his testimony, did not offer any
controverting evidence. If indeed PAL omitted to give information about the options
available to its diverted passengers, it would have been deluged with complaints. But,
only private respondent complained
Atty. Rivera (for PAL)
Q I understand from you Mr. Zapatos that at the
time you were waiting at Cotabato Airport for the
decision of PAL, you were not informed of the
decision until after the airplane left is that correct?
A Yes.
COURT:
Q What do you mean by "yes"? You meant you
were not informed?
A Yes, I was not informed of their decision, that
they will only accommodate few passengers.
Q Aside from you there were many other stranded
passengers?

A I believed, yes.

Q Why is it that it took you long time to leave that

place?

Q And you want us to believe that PAL did not

explain (to) any of these passengers about the
decision regarding those who will board the
aircraft back to Cebu?
A No, Sir.
Q Despite these facts Mr. Zapatos did any of the
other passengers complained (sic) regarding that
incident?
xxx xxx xxx
A There were plenty of argument and I was one of
those talking about my case.
Q Did you hear anybody complained (sic) that he
has not been informed of the decision before the
plane left for Cebu?

A No. 25
Admittedly, private respondent's insistence on being given priority in accommodation
was unreasonable considering the fortuitous event and that there was a sequence to
be observed in the booking, i.e., in the order the passengers checked-in at their port of
origin. His intransigence in fact was the main cause for his having to stay at the airport
longer than was necessary.
Atty. Rivera:
Q And, you were saying that despite the fact that
according to your testimony there were at least 16
passengers who were stranded there in Cotabato
airport according to your testimony, and later you
said that there were no other people left there at
that time, is that correct?

A Because I was arguing with the PAL

personnel. 26
Anent the plaint that PAL employees were disrespectful and inattentive toward private
respondent, the records are bereft of evidence to support the same. Thus, the ruling of
respondent Court of Appeals in this regard is without basis. 27 On the contrary, private
respondent was attended to not only by the personnel of PAL but also by its
Manager." 28
In the light of these findings, we find the award of moral damages of Fifty Thousand
Pesos (P50,000.00) unreasonably excessive; hence, we reduce the same to Ten
Thousand Pesos (P10,000.00). Conformably herewith, the award of exemplary
damages is also reduced to five Thousand Pesos (5,000.00). Moral damages are not
intended to enrich the private respondent. They are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to alleviate the moral
suffering he has undergone by reason of the defendant's culpable action. 29
With regard to the award of actual damages in the amount of P5,000.00 representing
private respondent's alleged business losses occasioned by his stay at Cotabato City,
we find the same unwarranted. Private respondent's testimony that he had a
scheduled business "transaction of shark liver oil supposedly to have been
consummated on August 3, 1975 in the morning" and that "since (private respondent)
was out for nearly two weeks I missed to buy about 10 barrels of shark liver oil," 30 are
purely speculative. Actual or compensatory damages cannot be presumed but must be
duly proved with reasonable degree of certainty. A court cannot rely on speculation,
conjecture or guesswork as to the fact and amount of damages, but must depend upon
competent proof that they have suffered and on evidence of the actual amount
thereof. 31
WHEREFORE the decision appealed from is AFFIRMED with modification however
that the award of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to
Ten Thousand Pesos (P10,000.00) while the exemplary damages of Ten Thousand
Pesos (P10,000.00) is also reduced to Five Thousand Pesos (P5,000.00). The award
of actual damages in the amount Five Thousand Pesos (P5,000.00) representing
business losses occasioned by private respondent's being stranded in Cotabato City is
deleted.
SO ORDERED.

A Yes, I did not see anyone there around. I think I

was the only civilian who was left there.
SOUTHEASTERN COLLEGE INC., petitioner,

vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA
DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO and MILAGROS
DIMAANO, respondents.

PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision 1 promulgated on July 31, 1996, and Resolution 2 dated September 12, 1996
of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda. de
Dimaano, et al. vs. Southeastern College, Inc.", which reduced the moral damages
awarded below from P1,000,000.00 to P200,000.00. 4 The Resolution under attack
denied petitioner's motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while
petitioner owns a four-storey school building along the same College Road. On
October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit Metro
Manila. Buffeted by very strong winds, the roof of petitioner's building was partly ripped
off and blown away, landing on and destroying portions of the roofing of private
respondents' house. After the typhoon had passed, an ocular inspection of the
destroyed building was conducted by a team of engineers headed by the city building
official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's Report 5 dated October
18, 1989 stated, as follows:
5. One of the factors that may have led to this calamitous event is
the formation of the building in the area and the general direction of
the wind. Situated in the peripheral lot is an almost U-shaped
formation of 4-storey building. Thus, with the strong winds having a
westerly direction, the general formation of the building becomes a
big funnel-like structure, the one situated along College Road,
receiving the heaviest impact of the strong winds. Hence, there are
portions of the roofing, those located on both ends of the building,
which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the
dislodging of the roofing structural trusses is the improper anchorage
of the said trusses to the roof beams. The 1/2' diameter steel bars
embedded on the concrete roof beams which serve as truss
anchorage are not bolted nor nailed to the trusses. Still, there are
other steel bars which were not even bent to the trusses, thus, those
trusses are not anchored at all to the roof beams.

It then recommended that "to avoid any further loss and damage to lives,
limbs and property of persons living in the vicinity," the fourth floor of subject
school building be declared as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for
damages based on culpa aquiliana, private respondents alleged that the damage to
their house rendered the same uninhabitable, forcing them to stay temporarily in
others' houses. And so they sought to recover from petitioner P117,116.00, as actual
damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary damages
and P100,000.00, for and as attorney's fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several
devastating typhoons and other calamities in the past, without its roofing or any portion
thereof giving way; that it has not been remiss in its responsibility to see to it that said
school building, which houses school children, faculty members, and employees, is "in
tip-top condition"; and furthermore, typhoon "Saling" was "an act of God and therefore
beyond human control" such that petitioner cannot be answerable for the damages
wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that subject
school building had a "defective roofing structure," found that, while typhoon "Saling"
was accompanied by strong winds, the damage to private respondents' houses "could
have been avoided if the construction of the roof of [petitioner's] building was not
faulty." The dispositive portion of the lower court's decision 7 reads, thus:
WHEREFORE, in view of the foregoing, the Court renders judgment
(sic) in favor of the plaintiff (sic) and against the defendants, (sic)
ordering the latter to pay jointly and severally the former as follows:
a) P117,116.00, as actual
damages, plus litigation
expenses;
b) P1,000,000.00 as moral
damages;
c) P100,000.00 as attorney's
fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the
defendants (sic) did in a wanton fraudulent, reckless, oppressive or
malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that:

I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON
"SALING", AS AN ACT OF GOD, IS NOT "THE SOLE AND
ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL
PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4)
STOREY SCHOOL BUILDING.

3. Whether or not respondent Dimaanos who are no longer the

owner of the property, subject matter of the case, during its
pendency, has the right to pursue their complaint against petitioner
when the case was already moot and academic by the sale of the
property to third party.
4. Whether or not the award of attorney's fees when the case was
already moot academic [sic] legally justified.

II
THE TRIAL COURT ERRED IN HOLDING THAT "THE
CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL
BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE
AS TYPHOON "SALING" WHICH IS THE DIRECT AND
PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEY'S FEES AND LITIGATION
EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY
HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS
DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN
INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND
ACADEMIC.

5. Whether or not petitioner is liable for damage caused to others by

typhoon "Saling" being an act of God.
6. Whether or not the issuance of a writ of execution pending
appeal, ex-parte or without hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is whether the damage on
the roof of the building of private respondents resulting from the impact of the falling
portions of the school building's roof ripped off by the strong winds of typhoon "Saling",
was, within legal contemplation, due to fortuitous event? If so, petitioner cannot be held
liable for the damages suffered by the private respondents. This conclusion finds
support in Article 1174 of Civil Code, which provides:
Art 1174. Except in cases expressly specified by the law, or when it
is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.

IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF
THE WRIT OF EXECUTION INSPITE OF THE PERFECTION OF
SOUTHEASTERN'S APPEAL WHEN THERE IS NO COMPELLING
REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial
court's disposition by reducing the award of moral damages from P1,000,000.00 to
P200,000.00. Hence, petitioner's resort to this Court, raising for resolution the issues
of:
1. Whether or not the award of actual damages [sic] to respondent
Dimaanos on the basis of speculation or conjecture, without proof or
receipts of actual damage, [sic] legally feasible or justified.
2. Whether or not the award of moral damages to respondent
Dimaanos, with the latter having suffered, actual damage has legal
basis.

The antecedent of fortuitous event or caso fortuito is found in the Partidas which
defines it as "an event which takes place by accident and could not have been
foreseen." 9 Escriche elaborates it as "an unexpected event or act of God which could
neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino adds that "[f]ortuitous
events may be produced by two general causes: (1) by nature, such as earthquakes,
storms, floods, epidemics, fires, etc. and (2) by the act of man, such as an armed
invasion, attack by bandits, governmental prohibitions, robbery, etc." 11
In order that a fortuitous event may exempt a person from liability, it is necessary that
he be free from any previous negligence or misconduct by reason of which the loss
may have been occasioned. 12 An act of God cannot be invoked for the protection of a
person who has been guilty of gross negligence in not trying to forestall its possible
adverse consequences. When a person's negligence concurs with an act of God in
producing damage or injury to another, such person is not exempt from liability by
showing that the immediate or proximate cause of the damages or injury was a
fortuitous event. When the effect is found to be partly the result of the participation of
man whether it be from active intervention, or neglect, or failure to act the whole
occurrence is hereby humanized, and removed from the rules applicable to acts of
God. 13

In the case under consideration, the lower court accorded full credence to the finding
of the investigating team that subject school building's roofing had "no sufficient
anchorage to hold it in position especially when battered by strong winds." Based on
such finding, the trial court imputed negligence to petitioner and adjudged it liable for
damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes
otherwise, notwithstanding the general rule that factual findings by the trail court,
especially when affirmed by the appellate court, are binding and conclusive upon this
Court. 14 After a careful scrutiny of the records and the pleadings submitted by the
parties, we find exception to this rule and hold that the lower courts misappreciated the
evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence
which may be foreseen but is unavoidable despite any amount of foresight, diligence
or care. 15 In order to be exempt from liability arising from any adverse consequence
engendered thereby, there should have been no human participation amounting to a
negligent act. 16 In other words; the person seeking exoneration from liability must not
be guilty of negligence. Negligence, as commonly understood, is conduct which
naturally or reasonably creates undue risk or harm to others. It may be the failure to
observe that degree of care, precaution, and vigilance which the circumstances justify
demand, 17 or the omission to do something which a prudent and reasonable man,
guided by considerations which ordinarily regulate the conduct of human affairs, would
do. 18 From these premises, we proceed to determine whether petitioner was negligent,
such that if it were not, the damage caused to private respondents' house could have
been avoided?
At the outset, it bears emphasizing that a person claiming damages for the negligence
of another has the burden of proving the existence of fault or negligence causative of
his injury or loss. The facts constitutive of negligence must be affirmatively established
by competent evidence, 19 not merely by presumptions and conclusions without basis
in fact. Private respondents, in establishing the culpability of petitioner, merely relied on
the aforementioned report submitted by a team which made an ocular inspection of
petitioner's school building after the typhoon. As the term imparts, an ocular inspection
is one by means of actual sight or viewing. 20 What is visual to the eye through, is not
always reflective of the real cause behind. For instance, one who hears a gunshot and
then sees a wounded person, cannot always definitely conclude that a third person
shot the victim. It could have been self-inflicted or caused accidentally by a stray bullet.
The relationship of cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no investigation was
conducted to determine the real cause of the partial unroofing of petitioner's school
building. Private respondents did not even show that the plans, specifications and
design of said school building were deficient and defective. Neither did they prove any
substantial deviation from the approved plans and specifications. Nor did they
conclusively establish that the construction of such building was basically flawed. 21

On the other hand, petitioner elicited from one of the witnesses of private respondents,
city building official Jesus Reyna, that the original plans and design of petitioner's
school building were approved prior to its construction. Engr. Reyna admitted that it
was a legal requirement before the construction of any building to obtain a permit from
the city building official (city engineer, prior to the passage of the Building Act of 1977).
In like manner, after construction of the building, a certification must be secured from
the same official attesting to the readiness for occupancy of the edifice. Having
obtained both building permit and certificate of occupancy, these are, at the very
least, prima facie evidence of the regular and proper construction of subject school
building. 22
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon
"Saling", the same city official gave the go-signal for such repairs without any
deviation from the original design and subsequently, authorized the use of the entire
fourth floor of the same building. These only prove that subject building suffers from no
structural defect, contrary to the report that its "U-shaped" form was "structurally
defective." Having given his unqualified imprimatur, the city building official is
presumed to have properly performed his duties 23 in connection therewith.
In addition, petitioner presented its vice president for finance and administration who
testified that an annual maintenance inspection and repair of subject school building
were regularly undertaken. Petitioner was even willing to present its maintenance
supervisor to attest to the extent of such regular inspection but private respondents
agreed to dispense with his testimony and simply stipulated that it would be
corroborative of the vice president's narration.
Moreover, the city building official, who has been in the city government service since
1974, admitted in open court that no complaint regarding any defect on the same
structure has ever been lodged before his office prior to the institution of the case at
bench. It is a matter of judicial notice that typhoons are common occurrences in this
country. If subject school building's roofing was not firmly anchored to its trusses,
obviously, it could not have withstood long years and several typhoons even stronger
than "Saling."
In light of the foregoing, we find no clear and convincing evidence to sustain the
judgment of the appellate court. We thus hold that petitioner has not been shown
negligent or at fault regarding the construction and maintenance of its school building
in question and that typhoon "Saling" was the proximate cause of the damage suffered
by private respondents' house.
With this disposition on the pivotal issue, private respondents' claim for actual and
moral damages as well as attorney's fees must fail. 24 Petitioner cannot be made to
answer for a purely fortuitous event. 25 More so because no bad faith or willful act to
cause damage was alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent proof of the pecuniary
loss they actually incurred.26 It is not enough that the damage be capable of proof but

must be actually proved with a reasonable degree of certainty, pointing out specific
facts that afford a basis for measuring whatever compensatory damages are
borne. 27 Private respondents merely submitted an estimated amount needed for the
repair of the roof their subject building. What is more, whether the "necessary repairs"
were caused ONLY by petitioner's alleged negligence in the maintenance of its school
building, or included the ordinary wear and tear of the house itself, is an essential
question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by
the trial court is hereby nullified and set aside. Private respondents are ordered to
reimburse any amount or return to petitioner any property which they may have
received by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED.
The complaint of private respondents in Civil Case No. 7314 before the trial court a
quo is ordered DISMISSED and the writ of execution issued on April 1, 1993 in said
case is SET ASIDE. Accordingly, private respondents are ORDERED to return to
petitioner any amount or property received by them by virtue of said writ. Costs against
the private respondents.
SO ORDERED.

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of
Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.

For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now
Globe Telecom, Inc. (Globe), had been engaged in the coordination of the provision of
various communication facilities for the military bases of the United States of America
(US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point,
Zambales. The said communication facilities were installed and configured for the
exclusive use of the US Defense Communications Agency (USDCA), and for security
reasons, were operated only by its personnel or those of American companies
contracted by it to operate said facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with Globe for the use of the
communication facilities. Globe, on the other hand, contracted with local service
providers such as the Philippine Communications Satellite Corporation (Philcomsat) for
the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby
Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth
station (earth station) within Cubi Point for the exclusive use of the USDCA.2 The term
of the contract was for 60 months, or five (5) years.3 In turn, Globe promised to pay
Philcomsat monthly rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that the Military
Bases Agreement between the Republic of the Philippines and the US (RP-US Military
Bases Agreement), which was the basis for the occupancy of the Clark Air Base and
Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII
of the 1987 Constitution, foreign military bases, troops or facilities, which include those
located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines
unless a new treaty is duly concurred in by the Senate and ratified by a majority of the
votes cast by the people in a national referendum when the Congress so requires, and
such new treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and
the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141,
expressing its decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval Base, among others.5 The last
two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing
relationship between the two countries in the spirit of friendship, cooperation
and sovereign equality: Now, therefore, be it Resolved by the Senate, as it is
hereby resolved, To express its decision not to concur in the ratification of the
Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements, at the same time reaffirming its desire to continue friendly
relations with the government and people of the United States of America.6

On 31 December 1991, the Philippine Government sent a Note Verbale to the US

Government through the US Embassy, notifying it of the Philippines termination of the
RP-US Military Bases Agreement. The Note Verbalestated that since the RP-US
Military Bases Agreement, as amended, shall terminate on 31 December 1992, the
withdrawal of all US military forces from Subic Naval Base should be completed by
said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to
discontinue the use of the earth station effective 08 November 1992 in view of the
withdrawal of US military personnel from Subic Naval Base after the termination of the
RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination
Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to
perform its obligation under this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event. Either party is thus precluded
from performing its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall mean
circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of
the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect
[Globe] to know its commitment to pay the stipulated rentals for the remaining terms of
the Agreement even after [Globe] shall have discontinue[d] the use of the earth station
after November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating
as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it
has been put into operation, a written notice shall be served to PHILCOMSAT
at least sixty (60) days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe] shall continue to pay
PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in
no case shall be less than the first two (2) T1 circuits, for the remaining life of
the agreement. However, should PHILCOMSAT make use or sell the earth
station subject to this agreement, the obligation of [Globe] to pay the rental for
the remaining life of the agreement shall be at such monthly rate as may be
agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated
24 November 1993 demanding payment of its outstanding obligations under the
Agreement amounting to US$4,910,136.00 plus interest and attorneys fees. However,
Globe refused to heed Philcomsats demand.

On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati
a Complaint against Globe, praying that the latter be ordered to pay liquidated
damages under the Agreement, with legal interest, exemplary damages, attorneys
fees and costs of suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the
non-ratification by the Senate of the Treaty of Friendship and Cooperation, which
events constituted force majeure under the Agreement. Globe explained that the
occurrence of said events exempted it from paying rentals for the remaining period of
the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety
Two Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00)
or its equivalent in Philippine Currency (computed at the exchange
rate prevailing at the time of compliance or payment) representing
rentals for the month of December 1992 with interest thereon at the
legal rate of twelve percent (12%) per annum starting December
1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of
merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the
Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements constitutes force majeure which exempts Globe from complying with its
obligations under the Agreement; (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for
exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for payment
of rent of the earth station for December 1992 and of attorneys fees. It explained that it
terminated Philcomsats services on 08 November 1992; hence, it had no reason to
pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsats appeal for lack of merit and affirming the trial courts finding that certain
events constituting force majeure under Section 8 the Agreement occurred and
justified the non-payment by Globe of rentals for the remainder of the term of the
Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security, and its Supplementary Agreements, and the
termination by the Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine Governments Note Verbale to
the US Government, are acts, directions, or requests of the Government of the
Philippines which constitute force majeure. In addition, there were circumstances
beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter
Corliss of the US Navy, the issuance of the letter notification from ATT and the
complete withdrawal of all US military forces and personnel from Cubi Point, which
prevented further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate
Philcomsats services by 08 November 1992, it is still liable to pay rentals for the
December 1992, amounting to US$92,238.00 plus interest, considering that the US
military forces and personnel completely withdrew from Cubi Point only on 31
December 1992.10
Both parties filed their respective Petitions for Review assailing the Decision of the
Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A
DEFINITION OF FORCE MAJEUREDIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES,
SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR
THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE AGREEMENT.

C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE

TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF
PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY
DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot
be considered a fortuitous event because the happening thereof was foreseeable.
Although the Agreement was freely entered into by both parties, Section 8 should be
deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat
posits the view that the validity of the parties definition of force majeure in Section 8 of
the Agreement as "circumstances beyond the control of the party involved including,
but not limited to, any law, order, regulation, direction or request of the Government of
the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies
or acts of God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not
liable to pay for the rental of the earth station for the entire term of the Agreement
because it runs counter to what was plainly stipulated by the parties in Section 7
thereof. Moreover, said ruling is inconsistent with the appellate courts pronouncement
that Globe is liable to pay rentals for December 1992 even though it terminated
Philcomsats services effective 08 November 1992, because the US military and
personnel completely withdrew from Cubi Point only in December 1992. Philcomsat
points out that it was Globe which proposed the five-year term of the Agreement, and
that the other provisions of the Agreement, such as Section 4.114 thereof, evince the
intent of Globe to be bound to pay rentals for the entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to
attorneys fees and exemplary damages.16
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement
is not contrary to Article 1174 of the Civil Code because said provision does not
prohibit parties to a contract from providing for other instances when they would be
exempt from fulfilling their contractual obligations. Globe also claims that the
termination of the RP-US Military Bases Agreement constitutes force majeure and
exempts it from complying with its obligations under the Agreement.17 On the issue of
the propriety of awarding attorneys fees and exemplary damages to Philcomsat,
Globe maintains that Philcomsat is not entitled thereto because in refusing to pay
rentals for the remainder of the term of the Agreement, Globe only acted in accordance
with its rights.18

In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals
erred in finding it liable for the amount of US$92,238.00, representing rentals for
December 1992, since Philcomsats services were actually terminated on 08
November 1992.20
In its Comment, Philcomsat claims that Globes petition should be dismissed as it
raises a factual issue which is not cognizable by the Court in a petition for review
on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsats Petition in G.R. No.

However, Article 1174, which exempts an obligor from liability on account of fortuitous
events or force majeure, refers not only to events that are unforeseeable, but also to
those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which,
could not be foreseen, or which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural
occurrences such as floods or typhoons,24 or an "act of man," such as riots, strikes or
wars.25

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

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to
the Petition filed by Globe inG.R. No. 147334 and required both parties to submit their
memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the
two cases, reiterating their arguments in their respective petitions.

Philcomsat and Globe agreed in Section 8 of the Agreement that the following events
shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine
Government;
2. Strikes or other labor difficulties;

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

3. Insurrection;

No reversible error was committed by the Court of Appeals in issuing the

assailed Decision; hence the petitions are denied.

7. Acts of public enemies;

4. Riots;
5. National emergencies;
6. War;

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

There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be
given effect because the enumeration of events constituting force majeure therein
unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code,
an event must be unforeseen in order to exempt a party to a contract from complying
with its obligations therein. It insists that since the expiration of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and
Security and the withdrawal of US military forces and personnel from Cubi Point were
not unforeseeable, but were possibilities known to it and Globe at the time they
entered into the Agreement, such events cannot exempt Globe from performing its
obligation of paying rentals for the entire five-year term thereof.

9. Other circumstances beyond the control of the parties.

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control
of the parties. There is nothing in the enumeration that runs contrary to, or expands,
the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish
such stipulations, clauses, terms and conditions as they may deem fit, as long as the
same do not run counter to the law, morals, good customs, public order or public
policy.27

Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts
have the force of law between the contracting parties and should be complied with in
good faith."28 Courts cannot stipulate for the parties nor amend their agreement where
the same does not contravene law, morals, good customs, public order or public policy,
for to do so would be to alter the real intent of the parties, and would run contrary to
the function of the courts to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order, or public policy, Section
8 of the Agreement which Philcomsat and Globe freely agreed upon has the force of
law between them.30
In order that Globe may be exempt from non-compliance with its obligation to pay
rentals under Section 8, the concurrence of the following elements must be
established: (1) the event must be independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the obligation in a normal manner; and
(3) the obligor must be free of participation in, or aggravation of, the injury to the
creditor.31
The Court agrees with the Court of Appeals and the trial court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no control over
the non-renewal of the term of the RP-US Military Bases Agreement when the same
expired in 1991, because the prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases
Agreement (and its Supplemental Agreements) under its Resolution No. 141.
(Exhibit "2") on September 16, 1991 is beyond the control of the parties. This
resolution was followed by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government to the US Government
notifying the latter of the formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that accordingly, the
withdrawal of all U.S. military forces from Subic Naval Base should be
completed by said date. Subsequently, defendant [Globe] received a formal
order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and
a notification from ATT dated July 29, 1992 to terminate the provision of T1s
services (via an IBS Standard B Earth Station) effective November 08, 1992.
Plaintiff [Philcomsat] was furnished with copies of the said order and letter by
the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the
Philippine Government to the US Government are acts, direction or request of
the Government of the Philippines and circumstances beyond the control of
the defendant. The formal order from Cdr. Walter Corliss of the USN, the
letter notification from ATT and the complete withdrawal of all the military
forces and personnel from Cubi Point in the year-end 1992 are also acts and
circumstances beyond the control of the defendant.

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

From the foregoing, the Court finds that the defendant is exempted from
paying the rentals for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement
(as amended) the continued stay of all US Military forces and personnel from
Subic Naval Base would no longer be allowed, hence, plaintiff would no
longer be in any position to render the service it was obligated under the
Agreement. To put it blantly (sic), since the US military forces and personnel
left or withdrew from Cubi Point in the year end December 1992, there was no
longer any necessity for the plaintiff to continue maintaining the IBS
facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until
the end of its five-year term without fault on the part of either party. The Court of
Appeals was thus correct in ruling that the happening of such fortuitous events
rendered Globe exempt from payment of rentals for the remainder of the term of the
Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though
Philcomsat cannot be compelled to perform its corresponding obligation under the
Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSATs position.
PHILCOMSAT would like to charge GLOBE rentals for the balance of the
lease term without there being any corresponding telecommunications service
subject of the lease. It will be grossly unfair and iniquitous to hold GLOBE
liable for lease charges for a service that was not and could not have been
rendered due to an act of the government which was clearly beyond GLOBEs
control. The binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the force of law
between the contracting parties, and there must be mutuality between them
based essentially on their equality under which it is repugnant to have one
party bound by the contract while leaving the other party free therefrom
(Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals for the
month of December 1992, the Court likewise affirms the appellate courts ruling that
Globe should pay the same.

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

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

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

DECISION

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

AUSTRIA-MARTINEZ, J.:

Exemplary damages may be awarded in cases involving contracts or quasi-contracts,

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

The factual background of the case is as follows:

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

Before the Court is a petition for review on certiorari of the Decision1 dated October 11,
2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the
Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC)
in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance
Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner);
and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks
owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance policies provide for
coverage on "book debts in connection with ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured anywhere in
the Philippines."2 The policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in
respect of the merchandise sold and delivered by the Insured which are
outstanding at the date of loss for a period in excess of six (6) months from
the date of the covering invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12)
days after the close of every calendar month all amount shown in their books

of accounts as unpaid and thus become receivable item from their customers
and dealers. x x x4

1. the amount of P2,119,205.60 representing the amount paid by the plaintiffappellant to the insured Inter Capitol Marketing Corporation, plus legal
interest from the time of demand until fully paid;

xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25,
1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner,
was consumed by fire. Included in the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It
alleges that IMC and LSPI filed with respondent their claims under their respective fire
insurance policies with book debt endorsements; that as of February 25, 1991, the
unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials
with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid
the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their
rights against petitioner; that respondent made several demands for payment upon
petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could
not be held liable because the property covered by the insurance policies were
destroyed due to fortuities event or force majeure; that respondent's right of
subrogation has no basis inasmuch as there was no breach of contract committed by it
since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI
never communicated to it that they insured their properties; that it never consented to
paying the claim of the insured.6

2. the amount of P535,613.00 representing the amount paid by the plaintiffappellant to the insured Levi Strauss Phil., Inc., plus legal interest from the
time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the
nature, quantity and cost of the thing sold; that loss of the goods in the fire must be
borne by petitioner since the proviso contained in the sales invoices is an exception
under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the loss under
the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the
delivery of the lost goods but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is considered a fortuitous event;
that by subrogation, the insurer has the right to go against petitioner; that, being a fire
insurance with book debt endorsements, what was insured was the vendor's interest
as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its
Resolution dated April 11, 2001.13

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus,
trial on the merits ensued.

Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:

On August 31, 1998, the RTC rendered its decision dismissing respondent's
complaint.8 It held that the fire was purely accidental; that the cause of the fire was not
attributable to the negligence of the petitioner; that it has not been established that
petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is
further agreed that merely for purpose of securing the payment of purchase price, the
above-described merchandise remains the property of the vendor until the purchase
price is fully paid", IMC and LSPI retained ownership of the delivered goods and must
bear the loss.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE

INSTANT CASE WAS ONE OVER CREDIT.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision
reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and
SET ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan,
Inc. to pay:

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE
SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER
UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot
be deemed to be over credit since an insurance "on credit" belies not only the nature of
fire insurance but the express terms of the policies; that it was not credit that was
insured since respondent paid on the occasion of the loss of the insured goods to fire
and not because of the non-payment by petitioner of any obligation; that, even if the

insurance is deemed as one over credit, there was no loss as the accounts were not
yet due since no prior demands were made by IMC and LSPI against petitioner for
payment of the debt and such demands came from respondent only after it had
already paid IMC and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitionerbuyer IMC and LSPI assumed the risk of loss when they secured fire insurance
policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since
all risk had transferred to petitioner upon delivery of the goods; that petitioner was not
privy to the insurance contract or the payment between respondent and its insured nor
was its consent or approval ever secured; that this lack of privity forecloses any real
interest on the part of respondent in the obligation to pay, limiting its interest to keeping
the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable
interest over said goods as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made clothing materials
since it failed to overcome the presumption of liability under Article 126516 of the Civil
Code; that the fire was caused through petitioner's negligence in failing to provide
stringent measures of caution, care and maintenance on its property because electric
wires do not usually short circuit unless there are defects in their installation or when
there is lack of proper maintenance and supervision of the property; that petitioner is
guilty of gross and evident bad faith in refusing to pay respondent's valid claim and
should be liable to respondent for contracted lawyer's fees, litigation expenses and
cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought
before it from the CA is limited to reviewing questions of law which involves no
examination of the probative value of the evidence presented by the litigants or any of
them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or
weigh evidence all over again.19 Accordingly, findings of fact of the appellate court are
generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues
may be resolved by this Court, such as: (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 CA 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 petitioner's 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
CA manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and
(11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner
claims that the CA erred in construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of
the ready-made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood,
there is no room for construction.22 In this case, the questioned insurance policies
provide coverage for "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."23 ; and defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."24 Nowhere is it provided in the questioned insurance
policies that the subject of the insurance is the goods sold and delivered to the
customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify
an attempt to read into it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract.25 Thus, what were
insured against were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or destruction of the goods
delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved
ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed
that merely for purpose of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until the purchase price
thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk whether actual delivery has
been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been retained
by the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis
supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt,
the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of
the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable
interest until full payment of the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's interest is not determined by
concept of title, but whether insured has substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof,
of such nature that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable interest in property
may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject matter of the insurance, and
neither the title nor a beneficial interest is requisite to the existence of such an interest,
it is sufficient that the insured is so situated with reference to the property that he
would be liable to loss should it be injured or destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.30Indeed, a vendor or seller retains
an insurable interest in the property sold so long as he has any interest therein, in
other words, so long as he would suffer by its destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the time of the loss
covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss
under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by
fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after
the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the payment of money, the failure of
the debtor to make the payment even by reason of a fortuitous event shall not relieve
him of his liability.33 The rationale for this is that the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does not apply when the
obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not extinguish the obligation." If
the obligation is generic in the sense that the object thereof is designated merely by its
class or genus without any particular designation or physical segregation from all
others of the same class, the loss or destruction of anything of the same kind even
without the debtor's fault and before he has incurred in delay will not have the effect of
extinguishing the obligation.35This rule is based on the principle that the genus of a
thing can never perish. Genus nunquan perit.36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters
immaterial to this case. What is relevant here is whether it has been established that
petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C"
to "C-22"38 show that petitioner has an outstanding account with IMC in the amount
of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon
receipt of the insurance proceeds. All these documents have been properly identified,
presented and marked as exhibits in court. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of respondent as insurer and IMC as the
insured, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of the insurance
claim.41Respondent's action against petitioner is squarely sanctioned by Article 2207 of
the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of
action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated
April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is

not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of
Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building
on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no
subrogation receipt was offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which LSPI may have against petitioner.
Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery
of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October
11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV
No. 61848 are AFFIRMED with the MODIFICATIONthat the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,

vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner
Sicam) and Agencia deR.C. Sicam, Inc. (petitioner corporation) seeking to annul the
Decision1 of the Court of Appeals dated March 31, 2003, and its Resolution2 dated
August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge
(respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan
in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever
cash and jewelry were found inside the pawnshop vault. The incident was entered in
the police blotter of the Southern Police District, Paraaque Police Station as follows:

Investigation shows that at above TDPO, while victims were inside the office,
two (2) male unidentified persons entered into the said office with guns
drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects (sic)
(2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered
them to lay (sic) face flat on the floor. Suspects asked forcibly the case and
assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson Toyota
unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of
the loss of her jewelry due to the robbery incident in the pawnshop. On November 2,
1987, respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief
stating that when the robbery happened, all jewelry pawned were deposited with Far
East Bank near the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare
the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to
return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a
complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was docketed as Civil Case
No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as
the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C.
Sicam, Inc; that petitioner corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made liable for an event
that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner
corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned
considering that he is not the real party-in-interest. Respondents opposed the same.
The RTC denied the motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993,
dismissing respondents complaint as well as petitioners counterclaim. The RTC held
that petitioner Sicam could not be made personally liable for a claim arising out of a
corporate transaction; that in the Amended Complaint of respondents, they asserted
that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a
consequence of the separate juridical personality of a corporation, the corporate debt
or credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the loss of
the pawned jewelry since it had not been rebutted by respondents that the loss of the
pledged pieces of jewelry in the possession of the corporation was occasioned by
armed robbery; that robbery is a fortuitous event which exempts the victim from liability
for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties
transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code,
the pawnshop as a pledgee is not responsible for those events which could not be
foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31,
2003, the CA reversed the RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and
the Decision dated January 12, 1993,of the Regional Trial Court of Makati,
Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to
pay appellants the actual value of the lost jewelry amounting to P272,000.00,
and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA applied
the doctrine of piercing the veil of corporate entity reasoning that respondents were
misled into thinking that they were dealing with the pawnshop owned by petitioner
Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C.
Sicam"; and that there was no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which explained why respondents had
to amend their complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it
should take steps to secure and protect the pledged items and should take steps to
insure itself against the loss of articles which are entrusted to its custody as it derives
earnings from the pawnshop trade which petitioners failed to do; that Austriais not
applicable to this case since the robbery incident happened in 1961 when the
criminality had not as yet reached the levels attained in the present day; that they are
at least guilty of contributory negligence and should be held liable for the loss of
jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged
in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to
respondents for the loss of the pawned jewelry.
Petitioners motion for reconsideration was denied in a Resolution dated August 8,
2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF
TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT

REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME

ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN
ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE
SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT
ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CAs finding that petitioner
Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical
reproduction of the arguments set out on pp. 5-6 of the Appellants brief."10
Petitioners argue that the reproduced arguments of respondents in their Appellants
Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended
Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia
de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised
and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced
the corporate veil since a corporation has a personality distinct and separate
from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their negligence is
likewise an unedited reproduction of respondents brief which had the following
defects:
(1) There were unrebutted evidence on record that petitioners had observed
the diligence required of them, i.e, they wanted to open a vault with a nearby
bank for purposes of safekeeping the pawned articles but was discouraged by
the Central Bank (CB) since CB rules provide that they can only store the
pawned articles in a vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against
the loss of the pledged jelweries, but it is judicial notice that due to high
incidence of crimes, insurance companies refused to cover pawnshops and
banks because of high probability of losses due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46),

the victim of robbery was exonerated from liability for the sum of money
belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties
subsequently submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact reproductions
of the arguments raised in respondents (appellants) brief filed with the CA, we find the
same to be not fatally infirmed. Upon examination of the Decision, we find that it
expressed clearly and distinctly the facts and the law on which it is based as required
by Section 8, Article VIII of the Constitution. The discretion to decide a case one way or
another is broad enough to justify the adoption of the arguments put forth by one of the
parties, as long as these are legally tenable and supported by law and the facts on
records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of
law committed by the appellate court. Generally, the findings of fact of the appellate
court are deemed conclusive and we are not duty-bound to analyze and calibrate all
over again the evidence adduced by the parties in the court a quo.12 This rule,
however, is not without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory13 as is obtaining in the
instant case.
However, after a careful examination of the records, we find no justification to absolve
petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam
liable together with petitioner corporation. The rule is that the veil of corporate fiction
may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate
issues. 14 The theory of corporate entity was not meant to promote unfair objectives or
otherwise to shield them.15
Notably, the evidence on record shows that at the time respondent Lulu pawned her
jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly observed
by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987,
all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was
allegedly incorporated in April 1987. The receipts issued after such alleged
incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably
misleading, or at the very least, creating the wrong impression to respondents and the
public as well, that the pawnshop was owned solely by petitioner Sicam and not by a
corporation.

Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987
addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor
of the pawnshop notwithstanding the alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had alleged in
their Amended Complaint that petitioner corporation is the present owner of the
pawnshop, the CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that 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.
Thus, the general rule that a judicial admission is conclusive upon the party making it
and does not require proof, admits of two exceptions, to wit: (1) when it is shown that
such admission was made through palpable mistake, and (2) when it is shown that no
such admission was in fact made. The latter exception allows one to contradict an
admission by denying that he made such an admission.17
The Committee on the Revision of the Rules of Court explained the second exception
in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the
admission "out of context," then the one making the "admission" may show
that he made no "such" admission, or that his admission was taken out of
context.
x x x that the party can also show that he made no "such
admission", i.e., not in the sense in which the admission is made to
appear.
That is the reason for the modifier "such" because if the rule simply states
that the admission may be contradicted by showing that "no admission was
made," the rule would not really be providing for a contradiction of the
admission but just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, they did so only because petitioner
Sicam alleged in his Answer to the original complaint filed against him that he was not
the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a
reading of the Amended Complaint in its entirety shows that respondents referred to
both petitioner Sicam and petitioner corporation where they (respondents) pawned
their assorted pieces of jewelry and ascribed to both the failure to observe due
diligence commensurate with the business which resulted in the loss of their pawned
jewelry.

Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended

Complaint, insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint
because the pawnshop tickets involved in this case did not show that the R.C.
Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the Complaint. He merely
added "that defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in
the subject transactions in this case which was the cause of the instant
action. He cannot now ask for the dismissal of the complaint against him
simply on the mere allegation that his pawnshop business is now
incorporated. It is a matter of defense, the merit of which can only be reached
after consideration of the evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents' Amended Complaint was
taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact
that petitioner Sicam continued to issue pawnshop receipts under his name and not
under the corporation's name militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil
of corporate fiction of petitioner corporation, as it was not an issue raised and litigated
before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the
real party-in-interest because since April 20, 1987, the pawnshop business initiated by
him was incorporated and known as Agencia deR.C. Sicam. In the pre-trial brief filed
by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was
whether he is the real party in interest against whom the complaint should be
directed.20 In fact, he subsequently moved for the dismissal of the complaint as to him
but was not favorably acted upon by the trial court. Moreover, the issue was squarely
passed upon, although erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is
concerned for the reason that he cannot be made personally liable for a claim
arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that "plaintiff pawned assorted jewelries in
defendant's pawnshop." It has been held that " as a consequence of the
separate juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder's debt or credit
that of a corporation.21

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether
petitioner Sicam is personally liable is inextricably connected with the determination of
the question whether the doctrine of piercing the corporate veil should or should not
apply to the case.
The next question is whether petitioners are liable for the loss of the pawned articles in
their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are
not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It
is therefore, not enough that the event should not have been foreseen or anticipated,
as is commonly believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause of
the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it impossible for the
debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from
any participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it.24 And, in order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that may have
occasioned the loss. 25

It has been held that an act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person's participation -- whether by active
intervention, neglect or failure to act -- the whole occurrence is humanized and
removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at the
time of the robbery. He likewise testified that when he started the pawnshop business
in 1983, he thought of opening a vault with the nearby bank for the purpose of
safekeeping the valuables but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the pawnshop. The very measures
which petitioners had allegedly adopted show that to them the possibility of robbery
was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams
testimony, in effect, contradicts petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which
the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the
possibility of negligence on the part of herein petitioners. In Co v. Court of
Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was
due to carnapping. Carnapping per se cannot be considered as a fortuitous
event. The fact that a thing was unlawfully and forcefully taken from
another's rightful possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of another's
property. It must be proved and established that the event was an act of
God or was done solely by third parties and that neither the claimant
nor the person alleged to be negligent has any participation. In
accordance with the Rules of Evidence, the burden of proving that the
loss was due to a fortuitous event rests on him who invokes it which
in this case is the private respondent. However, other than the police
report of the alleged carnapping incident, no other evidence was presented by
private respondent to the effect that the incident was not due to its fault. A
police report of an alleged crime, to which only private respondent is privy,
does not suffice to establish the carnapping. Neither does it prove that there
was no fault on the part of private respondent notwithstanding the parties'
agreement at the pre-trial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the part of private
respondent.28

Just like in Co, petitioners merely presented the police report of the Paraaque Police
Station on the robbery committed based on the report of petitioners' employees which
is not sufficient to establish robbery. Such report also does not prove that petitioners
were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that
petitioners are guilty of concurrent or contributory negligence as provided in Article
1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the special
laws and regulations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the
creditor shall take care of the thing pledged with the diligence of a good father of a
family. This means that petitioners must take care of the pawns the way a prudent
person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201,
paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something
which a reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do; or the doing of something which a prudent and
reasonable man would not do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable
care and caution that an ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the operation of their pawnshop
business. Petitioner Sicam testified, thus:
Court:

Q. Do you have security guards in your pawnshop?

A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that
there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in
the afternoon and it happened on a Saturday and everything was quiet in the
area BF Homes Paraaque they pretended to pawn an article in the
pawnshop, so one of my employees allowed him to come in and it was only
when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly
open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason
why the robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the operation
of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by
petitioners to protect the pawnshop from unlawful intrusion. There was no clear
showing that there was any security guard at all. Or if there was one, that he had
sufficient training in securing a pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent any untoward incident or to
ensure that no suspicious individuals were allowed to enter the premises. In fact, it is
even doubtful that there was a security guard, since it is quite impossible that he would
not have noticed that the robbers were armed with caliber .45 pistols each, which were
allegedly poked at the employees.33 Significantly, the alleged security guard was not
presented at all to corroborate petitioner Sicam's claim; not one of petitioners'
employees who were present during the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of
robbery is clearly a proof of petitioners' failure to observe the care, precaution and
vigilance that the circumstances justly demanded. Petitioner Sicam testified that once
the pawnshop was open, the combination was already off. Considering petitioner
Sicam's testimony that the robbery took place on a Saturday afternoon and the area in
BF Homes Paraaque at that time was quiet, there was more reason for petitioners to
have exercised reasonable foresight and diligence in protecting the pawned jewelries.
Instead of taking the precaution to protect them, they let open the vault, providing no
difficulty for the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not
taking steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for
Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to
Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns
pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and
against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took
effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns The office
building/premises and pawns of a pawnshop must be insured against
fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the
Central Bank considered it not feasible to require insurance of pawned articles against
burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted
amendment, there is no statutory duty imposed on petitioners to insure the pawned
jewelry in which case it was error for the CA to consider it as a factor in concluding that
petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise
the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his
conduct varies with the nature of the situation in which he is placed and the importance
of the act which he is to perform.34 Thus, the cases ofAustria v. Court of
Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37 cited

by petitioners in their pleadings, where the victims of robbery were exonerated from
liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be
sold on commission basis, but which Abad failed to subsequently return because of a
robbery committed upon her in 1961. The incident became the subject of a criminal
case filed against several persons. Austria filed an action against Abad and her
husband (Abads) for recovery of the pendant or its value, but the Abads set up the
defense that the robbery extinguished their obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was
guilty of negligence. The CA, however, reversed the RTC decision holding that the fact
of robbery was duly established and declared the Abads not responsible for the loss of
the jewelry on account of a fortuitous event. We held that for the Abads to be relieved
from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it would
only be sufficient that the unforeseen event, the robbery, took place without any
concurrent fault on the debtors part, and this can be done by preponderance of
evidence; that to be free from liability for reason of fortuitous event, the debtor must, in
addition to the casus itself, be free of any concurrent or contributory fault or
negligence.38
We found in Austria that under the circumstances prevailing at the time the Decision
was promulgated in 1971, the City of Manila and its suburbs had a high incidence of
crimes against persons and property that rendered travel after nightfall a matter to be
sedulously avoided without suitable precaution and protection; that the conduct of
Maria Abad in returning alone to her house in the evening carrying jewelry of
considerable value would have been negligence per se and would not exempt her from
responsibility in the case of robbery. However we did not hold Abad liable for
negligence since, the robbery happened ten years previously; i.e., 1961, when
criminality had not reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already
prevalent and petitioners in fact had already foreseen it as they wanted to deposit the
pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no
negligence was committed, we found petitioners negligent in securing their pawnshop
as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the
Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1,
1983, a Friday, he went to Manila to encash two checks covering the wages of the
employees and the operating expenses of the project. However for some reason, the
processing of the check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the project employees would
be waiting for their pay the following day; otherwise, the workers would have to wait
until July 5, the earliest time, when the main office would open. At that time, he had two
choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or
(2) take the money with him to his house in Marilao, Bulacan, spend the night there,
and leave for Ternate the following day. He chose the second option, thinking it was the

safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan.
While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the
money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one robber who was subsequently
charged with robbery and pleaded guilty. The other robber who held the stolen money
escaped. The Commission on Audit found Hernandez negligent because he had not
brought the cash proceeds of the checks to his office in Ternate, Cavite for
safekeeping, which is the normal procedure in the handling of funds. We held that
Hernandez was not negligent in deciding to encash the check and bringing it home to
Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the
following reasons: (1) he was moved by unselfish motive for his co-employees to
collect their wages and salaries the following day, a Saturday, a non-working, because
to encash the check on July 5, the next working day after July 1, would have caused
discomfort to laborers who were dependent on their wages for sustenance; and (2) that
choosing Marilao as a safer destination, being nearer, and in view of the comparative
hazards in the trips to the two places, said decision seemed logical at that time. We
further held that the fact that two robbers attacked him in broad daylight in the jeep
while it was on a busy highway and in the presence of other passengers could not be
said to be a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this
case took place in the pawnshop which is under the control of petitioners. Petitioners
had the means to screen the persons who were allowed entrance to the premises and
to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary
measures in ensuring that the robbers were prevented from entering the pawnshop
and for keeping the vault open for the day, which paved the way for the robbers to
easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education
and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from
Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents
were stolen by an unidentified person. Among those stolen were her wallet and the
government-issued cellular phone. She then reported the incident to the police
authorities; however, the thief was not located, and the cellphone was not recovered.
She also reported the loss to the Regional Director of TESDA, and she requested that
she be freed from accountability for the cellphone. The Resident Auditor denied her
request on the ground that she lacked the diligence required in the custody of
government property and was ordered to pay the purchase value in the total amount
of P4,238.00. The COA found no sufficient justification to grant the request for relief
from accountability. We reversed the ruling and found that riding the LRT cannot per se
be denounced as a negligent act more so because Cruzs mode of transit was
influenced by time and money considerations; that she boarded the LRT to be able to
arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person
under similar circumstance can reasonably be expected to do the same; that
possession of a cellphone should not hinder one from boarding the LRT coach as Cruz
did considering that whether she rode a jeep or bus, the risk of theft would have also
been present; that because of her relatively low position and pay, she was not
expected to have her own vehicle or to ride a taxicab; she did not have a government

assigned vehicle; that placing the cellphone in a bag away from covetous eyes and
holding on to that bag as she did is ordinarily sufficient care of a cellphone while
traveling on board the LRT; that the records did not show any specific act of negligence
on her part and negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop
and they were negligent in not exercising the precautions justly demanded of a
pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals
dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
SO ORDERED.

On various dates and for different amounts, Metro Concast, a corporation duly
organized and existing under and by virtue of Philippine laws and engaged in the
business of manufacturing steel,5 through its officers, herein individual petitioners,
obtained several loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts, the details of which are as
follows:
<<Reference: http://www.scribd.com/doc/196404620/177921>>
Date Document Amount
December 13, 1996 Promissory Note No. 96-213016
P2,000,000.00 November 7, 1995 Trust Receipt No. 96-2023657
P608,603.04 May 13, 1996 Trust Receipt No. 96-9605228
P3,753,777.40 May 24, 1996 Trust Receipt No. 96-9605249
P4,602,648.08 March 21, 1997 Trust Receipt No. 97-20472410
P7,289,757.79 June 7, 1996 Trust Receipt No. 96-20328011
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND
TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES
VICENTE AND FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.

P17,340,360.73 July 26, 1995 Trust Receipt No. 95-20194312

P670,709.24 August 31, 1995 Trust Receipt No. 95-20205313
P313,797.41 November 16, 1995 Trust Receipt No. 96-20243914

RESOLUTION
P13,015,109.87 July 3, 1996 Trust Receipt No. 96-20355215
PERLAS-BERNABE, J.:
P401,608.89 June 20, 1995 Trust Receipt No. 95-20171016
1

Assailed in this petition for review on certiorari are the Decision dated February 12,
2007 and the Resolution3dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R.
CV No. 86896 which reversed and set aside the Decision4 dated January 17, 2006 of
the Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case No. 00-1563, thereby
ordering petitioners Metro Concast Steel Corporation (Metro Concast), Spouses Jose
S. Dychiao and Tiu Oh Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses
Vicente and Filomena Duchiao (individual petitioners) to solidarily pay respondent
Allied Bank Corporation (Allied Bank) the aggregate amount ofP51,064,094.28, with
applicable interests and penalty charges.
The Facts

P750,089.25 December 13, 1995 Trust Receipt No. 96-37908917

P92,919.00 December 13, 1995 Trust Receipt No. 96/20258118
P224,713.58
The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per
annum (p.a.), with penalty charge of 3% per month in case of default; while the twelve
(12) trust receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty
charge. By way of security, the individual petitioners executed several Continuing
Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank. Petitioners

failed to settle their obligations under the aforementioned promissory note and trust
receipts, hence, Allied Bank, through counsel, sent them demand letters,20 all dated
December 10, 1998, seeking payment of the total amount of P51,064,093.62, but to no
avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of
money21 (subject complaint) against petitioners before the RTC, docketed as Civil
Case No. 00-1563. In their second22 Amended Answer,23petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests and penalties charged,
claiming to have paid the total sum of P65,073,055.73 by way of interest charges for
the period covering 1992 to 1997.24

subsequently received29 the P2,000,000.00 cash and the two (2) Bankwise post-dated
checks worthP1,000,000.00 each from Camiling. However, Atty. Saw turned over only
the two (2) checks and P1,500,000.00 in cash to the wife of Jose Dychiao.30

They also alleged that the economic reverses suffered by the Philippine economy in
1998 as well as the devaluation of the peso against the US dollar contributed greatly to
the downfall of the steel industry, directly affecting the business of Metro Concast and
eventually leading to its cessation. Hence, in order to settle their debts with Allied
Bank, petitioners offered the sale of Metro Concasts remaining assets, consisting of
machineries and equipment, to Allied Bank, which the latter, however, refused. Instead,
Allied Bank advised them to sell the equipment and apply the proceeds of the sale to
their outstanding obligations. Accordingly, petitioners offered the equipment for sale,
but since there were no takers, the equipment was reduced into ferro scrap or scrap
metal over the years. In 2002, Peakstar Oil Corporation (Peakstar), represented by
one Crisanta Camiling (Camiling), expressed interest in buying the scrap metal. During
the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a
member of Allied Banks legal department, acted as the latters agent. Eventually, with
the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of
Agreement25 dated November 8, 2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which
Peakstar obligated itself to purchase the scrap metal for a total consideration
ofP34,000,000.00, payable as follows:

The RTC Ruling

(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be paid in cash and

the other P2,000,000.00 to be paid in two (2) post-dated checks of P1,000,000.00
each;26 and
(b) the balance of P30,000,000.00 to be paid in ten (10) monthly installments
of P3,000,000.00, secured by bank guarantees from Bankwise, Inc. (Bankwise) in the
form of separate post-dated checks.27
Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard,
petitioners asseverated that:
(a) their failure to pay their outstanding loan obligations to Allied Bank must be
considered as force majeure ; and
(b) since Allied Bank was the party that accepted the terms and conditions of payment
proposed by Peakstar, petitioners must therefore be deemed to have settled their
obligations to Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose
Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA and

Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed
for the award of moral damages in the amount of P20,000,000.00 in favor of Metro
Concast and at least P25,000,000.00 for each individual petitioner, P25,000,000.00 as
exemplary damages, P1,000,000.00 as attorneys fees, P500,000.00 for other litigation
expenses, including costs of suit.

After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed
the subject complaint, holding that the "causes of action sued upon had been paid or
otherwise extinguished." It ruled that since Allied Bank was duly represented by its
agent, Atty. Saw, in all the negotiations and transactions with Peakstar considering
that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition of the scrap metal
then it stands to reason that the MoA between Metro Concast and Peakstar was
binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007,
reversed and set aside the ruling of the RTC, ratiocinating that there was "no legal
basis in fact and in law to declare that when Bankwise reneged its guarantee under the
[MoA], herein [petitioners] should be deemed to be discharged from their obligations
lawfully incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as seller of the ferro
scrap, and Peakstar, as the buyer thereof, and found that the same did not indicate
that Allied Bank intervened or was a party thereto. It also pointed out the fact that the
post-dated checks pursuant to the MoA were issued in favor of Jose Dychiao.
Likewise, the CA found no sufficient evidence on record showing that Atty. Saw was
duly and legally authorized to act for and on behalf of Allied Bank, opining that the RTC
was "indulging in hypothesis and speculation"34 when it made a contrary
pronouncement. While Atty. Saw received the earnest money from Peakstar, the
receipt was signed by him on behalf of Jose Dychiao.35

It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed
by [Atty.] Saw either as representative of [petitioners] or as partner of the latters legal
counsel, and not in anyway as representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed petitioners to solidarily pay
Allied Bank their corresponding obligations under the aforementioned promissory note
and trust receipts, plus interests, penalty charges and attorneys fees. Petitioners
sought reconsideration37 which was, however, denied in a Resolution38 dated May 10,
2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of whether or not the loan
obligations incurred by the petitioners under the subject promissory note and various
trust receipts have already been extinguished.
The Courts Ruling
Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due, the condonation or remission of the
debt, the confusion or merger of the rights of creditor and debtor, compensation or
novation.

In the present case, petitioners essentially argue that their loan obligations to Allied
Bank had already been extinguished due to Peakstars failure to perform its own
obligations to Metro Concast pursuant to the MoA. Petitioners classify Peakstars
default as a form of force majeure in the sense that they have, beyond their control,
lost the funds they expected to have received from the Peakstar (due to the MoA)
which they would, in turn, use to pay their own loan obligations to Allied Bank. They
further state that Allied Bank was equally bound by Metro Concasts MoA with Peakstar
since its agent, Atty. Saw, actively represented it during the negotiations and execution
of the said agreement. Petitioners arguments are untenable. At the outset, the Court
must dispel the notion that the MoA would have any relevance to the performance of
petitioners obligations to Allied Bank. The MoA is a sale of assets contract, while
petitioners obligations to Allied Bank arose from various loan transactions. Absent any
showing that the terms and conditions of the latter transactions have been, in any way,
modified or novated by the terms and conditions in the MoA, said contracts should be
treated separately and distinctly from each other, such that the existence, performance
or breach of one would not depend on the existence, performance or breach of the
other. In the foregoing respect, the issue on whether or not Allied Bank expressed its
conformity to the assets sale transaction between Metro Concast and Peakstar (as
evidenced by the MoA) is actually irrelevant to the issues related to petitioners loan
obligations to the bank. Besides, as the CA pointed out, the fact of Allied Banks
representation has not been proven in this case and hence, cannot be deemed as a
sustainable defense to exculpate petitioners from their loan obligations to Allied Bank.
Now, anent petitioners reliance on force majeure, suffice it to state that Peakstars
breach of its obligations to Metro Concast arising from the MoA cannot be classified as
a fortuitous event under jurisprudential formulation. As discussed in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It
is therefore, not enough that the event should not have been foreseen or anticipated,
as is commonly believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the same. To
constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee
the event that constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it impossible for
the debtor to fulfill obligations in a normal manner; and (d) the obligor must be free
from any participation in the aggravation of the injury or loss.40 (Emphases supplied)
While it may be argued that Peakstars breach of the MoA was unforseen by
petitioners, the same us clearly not "impossible"to foresee or even an event which is
independent of human will." Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates
the formers force majeure theory altogether. In any case, as earlier stated, the
performance or breach of the MoA bears no relation to the performance or breach of
the subject loan transactions, they being separate and distinct sources of obligations.
The fact of the matter is that petitioners loan obligations to Allied Bank remain
subsisting for the basic reason that the former has not been able to prove that the
same had already been paid41 or, in any way, extinguished. In this regard, petitioners

liability, as adjudged by the CA, must perforce stand. Considering, however, that Allied
Banks extra-judicial demand on petitioners appears to have been made only on
December 10, 1998, the computation of the applicable interests and penalty charges
should be reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and
Resolution dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are
hereby AFFIRMED with MODIFICATION reckoning the applicable interests and
penalty charges from the date of the extrajudicial demand or on December 10, 1998.
The rest of the appellate courts dispositions stand.
SO ORDERED.