G.R. No.

L-47362

December 19, 1940

JUAN F. VILLARROEL, recurrente-apelante,

vs.
BERNARDINO ESTRADA, recurrido-apelado.

Se confirma la sentencia apelada, con las costas al apelante. Asi se ordena.

TRANSLATION

D. Felipe Agoncillo en representacion del recurrente-appelante.

D. Crispin Oben en representacion del recurrido-apelado.

On May 9, 1912, Alejandro F. Callao, mother of defendant John F. Villarroel, obtained from spouses
Mariano Estrada and Severina a loan of P1,000 payable after seven years (Exhibito A). Alejandra died,
leaving as sole heir to the defendant. Spouses Mariano Estrada and Severina died too, leaving as sole
heir to the plaintiff Bernardino Estrada. On August 9, 1930, the defendant signed a document
(Exhibito B) which states in duty the applicant the sum of P1,000, with an interest of 12 percent per
year. This action concerns the payment of this amount.

AVANCEA, Pres.:

The Court of First Instance of Laguna, in which this action was filed, condemn the defendant to pay
the claimed amount of P1,000 its legal interests of 12 percent a year since August 9, 1930 until full
payment. I will appeal this sentence.

El 9 de mayo de 1912, Alejandro F. Callao, madre del demandado Juan F. Villarroel, obtuvo de los
esposos Mariano Estrada y Severina un prestamo de P1,000 pagadero al cabo de siete aos (Exhibito
A). Alejandra fallecio, dejando como unico heredero al demandado. Los esposos Mariano Estrada y
Severina fallecieron tambien, dejando como unico heredero al demandante Bernardino Estrada. El 9
de agosto de 1930, el demandado suscribio un documento (Exhibito B) por el cual declara en deber al
demandante la cantidad de P1,000, con un interes de 12 por ciento al ao. Esta accion versa sobre el
cobro de esta cantidad.
El Juzgado de primera Instancia de Laguna, en el cual se interpuso esta accion, condeno al
demandado a pagar al demandante la cantidad reclamada de P1,000 con sus intereses legales de 12
por ciento al ao desde el 9 de agosto de 1930 hasta su completo pago. Se apelo de esta sentencia.
Se notara que las partes en la presente causa son, respectivamente, los unicos herederos de los
acreedores y de la deudora originales. Esta accion se ejercita en virtud de la obligacion que el
demandado como unico hijo de la primitiva deudora contrajo en favor del demandante, unico heredero
de loa primitivos acreedores. Se admite que la cantidad de P1,000 a que se contrae esta obligacion es
la misma deuda de la madre del demandado a los padres del demandante.lawphil.net
Aunque la accion para recobrar la deuda original ha prescrito ya cuando se interpuso la demanda en
esta causa, la cuestion que se suscita en esta apelacion es principalmente la de si, no obstante tal
prescripcion, es procedente la accion entablada. Sin embargo, no se funda la presente accion en la
obligacion original contraida por la madre del demandado, que ya ha prescrito, sino en la que contrajo
el demandado el 9 de agosto de 1930 (Exhibito B) al asumir el cumplimiento de aquella obligacion, ya
prescrita. Siendo el demandado el unico herdero de la primitiva deudora, con derecho a sucederla en
su herencia, aquella deuda con traida por su madre legalmente, aunque perdio su eficacia por
prescripcion, ahora es, sin embargo, para el una obligacion moral, que es consideracion suficiente a
crear y hacer eficaz y exigible su obligacion voluntariamente contraida el 9 de agosto de 1930 en el
Exhibito B.
La regla de que una promesa nueva de pagar una deuda prrescrita debe ser hecha por la misma
persona obligada o por otra legalmente autorizada por ella, no es aplicable al caso presente en que no
se exige el cumplimiento de la obligacion de la obligada orignalmente, sino del que des pues quiso
voluntariamente asumir esta obligacion.

It will be noted that the parties in the present case are, respectively, the only heirs of the original
creditor and debtor. This action is brought under the obligation that the defendant as the only son of
the original debtor contracted for the plaintiff, sole heir of primitive loa creditors. It is recognized that
the amount of P1,000 to this obligation to the parents of demandante.lawphil.net contracts is the
same debt mother of defendant
Although the action to recover the original debt has already prescribed when the lawsuit was filed in
this case, the question that arises in this appeal is primarily whether, notwithstanding such
prescription is brought from the action. However, this action is not based on the original obligation
contracted by the mother of the defendant, who has already prescribed, but which contracted the
defendant on August 9, 1930 (Exhibito B) by assuming the fulfillment of that obligation, and
prescribed. As the defendant the only herdero of the original debtor, with the right to succeed her in
his inheritance, that debt brought by her mother legally, but lost their effectiveness by prescription, it
is now, however, for a moral obligation, which is consideration enough to create and make effective
and enforceable his obligation voluntarily on August 9, 1930 in the Exhibito B.
The rule that a new promise to pay a prrescrita debt must be made by the same person obligated or
other legally authorized by it, is not applicable to the present case that compliance with the obligation
of the obligated orignalmente is not required, but which as I wanted des voluntarily assume this
obligation.
the original ruling, with costs against the appellant is confirmed. So it is ordered.

EN BANC
G.R. No. L-13667

April 29, 1960

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,

vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET AL., defendantsappellees.

Celso A. Fernandez for appellants.

Juan C. Jimenez, for appellees.

voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof".

PARAS, C. J.:

It is thus readily seen that an element of natural obligation before it can be cognizable by the court is
voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has been
voluntary performance. But here there has been no voluntary performance. In fact, the court cannot
order the performance.

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a complaint
praying for a 20% Christmas bonus for the years 1954 and 1955. The court a quo on appellees'
motion to dismiss, issued the following order:
Considering the motion to dismiss filed on 15 August, 1956, set for this morning; considering
that at the hearing thereof, only respondents appeared thru counsel and there was no
appearance for the plaintiffs although the court waited for sometime for them; considering,
however, that petitioners have submitted an opposition which the court will consider together
with the arguments presented by respondents and the Exhibits marked and presented,
namely, Exhibits 1 to 5, at the hearing of the motion to dismiss; considering that the action in
brief is one to compel respondents to declare a Christmas bonus for petitioners workers in the
National Development Company; considering that the Court does not see how petitioners may
have a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers
to command respondents to be liberal;

At this point, we would like to reiterate what we said in the case of Philippine Education Co. vs. CIR
and the Union of Philippine Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278)
xxx

xxx

xxx

From the legal point of view a bonus is not a demandable and enforceable obligation. It is so
when it is made a part of the wage or salary compensation.
And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union, et al., 95 Phil.,
553; 50 Off. Gaz., 4253, we stated that:
Even if a bonus is not demandable for not forming part of the wage, salary or compensation of
an employee, the same may nevertheless, be granted on equitable consideration as when it
was given in the past, though withheld in succeeding two years from low salaried employees
due to salary increases.

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party to
comply with a moral obligation (Art. 142, New Civil Code.).

still the facts in said Heacock case are not the same as in the instant one, and hence the ruling applied
in said case cannot be considered in the present action.

IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

Premises considered, the order appealed from is hereby affirmed, without pronouncement as to costs.

A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.
Appellants contend that there exists a cause of action in their complaint because their claim rests on
moral grounds or what in brief is defined by law as a natural obligation.
Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that
the grant arises only from a moral obligation or the natural obligation that they discussed in their
brief, this Court feels it urgent to reproduce at this point, the definition and meaning of natural
obligation.
Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a
right of action to compel their performance. Natural obligations, not being based on positive law but
on equity and natural law, do not grant a right of action to enforce their performance, but after

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia Barrera and
Gutierrez David, JJ., concur.
FIRST DIVISION
G.R. No. L-48889 May 11, 1989
DEVELOPMENT
BANK
OF
THE
PHILIPPINES
(DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First
Instance
of
Iloilo
and
SPOUSES
PATRICIO
CONFESOR
and
JOVITA
VILLAFUERTE, respondents.

GANCAYCO, J.:
The issue posed in this petition for review on certiorari is the validity of a promissory note which was
executed in consideration of a previous promissory note the enforcement of which had been barred by
prescription.
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan
from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the
sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said date whereby they
bound themselves jointly and severally to pay the account in ten (10) equal yearly amortizations. As
the obligation remained outstanding and unpaid even after the lapse of the aforesaid ten-year period,
Confesor, who was by then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same
on or before June 15, 1961. The new promissory note reads as follows
I hereby promise to pay the amount covered by my promissory note on or before June
15, 1961. Upon my failure to do so, I hereby agree to the foreclosure of my mortgage.
It is understood that if I can secure a certificate of indebtedness from the government
of my back pay I will be allowed to pay the amount out of it.
Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated
September 11, 1970 in the City Court of Iloilo City against the spouses for the payment of the loan.

respondent became liable in his personal capacity. The petition is impressed with merit. The right to
prescription may be waived or renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results
from acts which imply the abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10, 1940.
However, when respondent Confesor executed the second promissory note on April 11, 1961 whereby
he promised to pay the amount covered by the previous promissory note on or before June 15, 1961,
and upon failure to do so, agreed to the foreclosure of the mortgage, said respondent thereby
effectively and expressly renounced and waived his right to the prescription of the action covering the
first promissory note.
This Court had ruled in a similar case that
... when a debt is already barred by prescription, it cannot be enforced by the creditor.
But a new contract recognizing and assuming the prescribed debt would be valid and
enforceable ... . 1
Thus, it has been held

After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the
dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court renders judgment, ordering the
defendants Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff
Development Bank of the Philippines, jointly and severally, (a) the sum of P5,760.96
plus additional daily interest of P l.04 from September 17, 1970, the date Complaint
was filed, until said amount is paid; (b) the sum of P576.00 equivalent to ten (10%) of
the total claim by way of attorney's fees and incidental expenses plus interest at the
legal rate as of September 17,1970, until fully paid; and (c) the costs of the suit.
Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course a
decision was rendered on April 28, 1978 reversing the appealed decision and dismissing the complaint
and counter-claim with costs against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10,
1978. Hence this petition wherein petitioner alleges that the decision of respondent judge is contrary
to law and runs counter to decisions of this Court when respondent judge (a) refused to recognize the
law that the right to prescription may be renounced or waived; and (b) that in signing the second
promissory note respondent Patricio Confesor can bind the conjugal partnership; or otherwise said

Where, therefore, a party acknowledges the correctness of a debt and promises to pay
it after the same has prescribed and with full knowledge of the prescription he thereby
waives the benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the
debt. The consideration of the new promissory note is the pre-existing obligation under the first
promissory note. The statutory limitation bars the remedy but does not discharge the debt.
A new express promise to pay a debt barred ... will take the case from the operation of
the statute of limitations as this proceeds upon the ground that as a statutory
limitation merely bars the remedy and does not discharge the debt, there is something
more than a mere moral obligation to support a promise, to wit a pre-existing debt
which is a sufficient consideration for the new the new promise; upon this sufficient
consideration constitutes, in fact, a new cause of action. 3
... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as reanimating the
old promise, or as imparting vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to recover upon his original contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor cannot
thereby bind his wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil Code which
provides:
Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or
is under civil interdiction or is confined in a leprosarium, the husband cannot alienate
or encumber any real property of the conjugal partnership without, the wife's consent.
If she ay compel her to refuses unreasonably to give her consent, the court m grant
the same.
We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal
partnership. As such administrator, all debts and obligations contracted by the husband for the benefit
of the conjugal partnership, are chargeable to the conjugal partnership. 5 No doubt, in this case,
respondent Confesor signed the second promissory note for the benefit of the conjugal partnership.
Hence the conjugal partnership is liable for this obligation.
WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is
hereby rendered reinstating the decision of the City Court of Iloilo City of December 27, 1976, without
pronouncement as to costs in this instance. This decision is immediately executory and no motion for
extension of time to file motion for reconsideration shall be granted.
SO ORDERED.
Narvasa and Cruz, JJ., concur.
Grio-Aquino, J., took no part.

EN BANC
G.R. No. L-3756

June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiffappellee,

vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.
First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for
appellant.
Ramirez and Ortigas for appellee.
LABRADOR, J.:

This is an action to recover the possession of a piece of real property (land and warehouses) situated
in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the plaintiff, in
whose name the title was registered before the war. On January 4, 1943, during the Japanese military
occupation, the land was acquired by a Japanese corporation by the name of Taiwan Tekkosho for the
sum of P140,00, and thereupon title thereto issued in its name (transfer certificate of title No. 64330,
Register of Deeds, Manila). After liberation, more specifically on April 4, 1946, the Alien Property
Custodian of the United States of America took possession, control, and custody thereof under section
12 of the Trading with the Enemy Act, 40 Stat., 411, for the reason that it belonged to an enemy
national. During the year 1946 the property was occupied by the Copra Export Management Company
under a custodianship agreement with United States Alien Property Custodian (Exhibit G), and when it
vacated the property it was occupied by the defendant herein. The Philippine Government made
representations with the Office Alien Property Custodian for the use of property by the Government
(see Exhibits 2, 2-A, 2-B, and 1). On March 31, 1947, the defendant was authorized to repair the
warehouse on the land, and actually spent thereon the repairs the sum of P26,898.27. In 1948,
defendant leased one-third of the warehouse to one Dioscoro Sarile at a monthly rental of P500, which
was later raised to P1,000 a month. Sarile did not pay the rents, so action was brought against him. It
is not shown, however, if the judgment was ever executed.
Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as
this was denied, it brought an action in court (Court of First Instance of Manila, civil case No. 5007,
entitled "La Sagrada Orden Predicadores de la Provinicia del Santisimo Rosario de Filipinas," vs.
Philippine Alien Property Administrator, defendant, Republic of the Philippines, intervenor) to annul the
sale of property of Taiwan Tekkosho, and recover its possession. The Republic of the Philippines was
allowed to intervene in the action. The case did not come for trial because the parties presented a
joint petition in which it is claimed by plaintiff that the sale in favor of the Taiwan Tekkosho was null
and void because it was executed under threats, duress, and intimidation, and it was agreed that the
title issued in the name of the Taiwan Tekkosho be cancelled and the original title of plaintiff re-issued;
that the claims, rights, title, and interest of the Alien Property Custodian be cancelled and held for
naught; that the occupant National Coconut Corporation has until February 28, 1949, to recover its
equipment from the property and vacate the premises; that plaintiff, upon entry of judgment, pay to
the Philippine Alien Property Administration the sum of P140,000; and that the Philippine Alien
Property Administration be free from responsibility or liability for any act of the National Coconut
Corporation, etc. Pursuant to the agreement the court rendered judgment releasing the defendant and
the intervenor from liability, but reversing to the plaintiff the right to recover from the National
Coconut Corporation reasonable rentals for the use and occupation of the premises. (Exhibit A-1.)
The present action is to recover the reasonable rentals from August, 1946, the date when the
defendant began to occupy the premises, to the date it vacated it. The defendant does not contest its
liability for the rentals at the rate of P3,000 per month from February 28, 1949 (the date specified in
the judgment in civil case No. 5007), but resists the claim therefor prior to this date. It interposes the
defense that it occupied the property in good faith, under no obligation whatsoever to pay rentals for
the use and occupation of the warehouse. Judgment was rendered for the plaintiff to recover from the
defendant the sum of P3,000 a month, as reasonable rentals, from August, 1946, to the date the
defendant vacates the premises. The judgment declares that plaintiff has always been the owner, as

the sale of Japanese purchaser was void ab initio; that the Alien Property Administration never
acquired any right to the property, but that it held the same in trust until the determination as to
whether or not the owner is an enemy citizen. The trial court further declares that defendant can not
claim any better rights than its predecessor, the Alien Property Administration, and that as defendant
has used the property and had subleased portion thereof, it must pay reasonable rentals for its
occupation.
Against this judgment this appeal has been interposed, the following assignment of error having been
made on defendant-appellant's behalf:
The trial court erred in holding the defendant liable for rentals or compensation for the use
and occupation of the property from the middle of August, 1946, to December 14, 1948.
1. Want to "ownership rights" of the Philippine Alien Property Administration did not render
illegal or invalidate its grant to the defendant of the free use of property.
2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff to the
Japanese purchaser null and void ab initio and that the plaintiff was and has remained as the
legal owner of the property, without legal interruption, is not conclusive.
3. Reservation to the plaintiff of the right to recover from the defendant corporation not
binding on the later;
4. Use of the property for commercial purposes in itself alone does not justify payment of
rentals.
5. Defendant's possession was in good faith.
6. Defendant's possession in the nature of usufruct.
In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration (PAPA)
was a mere administrator of the owner (who ultimately was decided to be plaintiff), and that as
defendant has used it for commercial purposes and has leased portion of it, it should be responsible
therefore to the owner, who had been deprived of the possession for so many years. (Appellee's brief,
pp. 20, 23.)
We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of
the property and the defendant-appellant the occupant, which used for its own benefit but by the
express permission of the Alien Property Custodian of the United States, so easily jumped to the
conclusion that the occupant is liable for the value of such use and occupation. If defendant-appellant
is liable at all, its obligations, must arise from any of the four sources of obligations, namley, law,
contract or quasi-contract, crime, or negligence. (Article 1089, Spanish Civil Code.) Defendantappellant is not guilty of any offense at all, because it entered the premises and occupied it with the

permission of the entity which had the legal control and administration thereof, the Allien Property
Administration. Neither was there any negligence on its part. There was also no privity (of contract or
obligation) between the Alien Property Custodian and the Taiwan Tekkosho, which had secured the
possession of the property from the plaintiff-appellee by the use of duress, such that the Alien
Property Custodian or its permittee (defendant-appellant) may be held responsible for the supposed
illegality of the occupation of the property by the said Taiwan Tekkosho. The Allien Property
Administration had the control and administration of the property not as successor to the interests of
the enemy holder of the title, the Taiwan Tekkosho, but by express provision of law (Trading with the
Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a trustee of the former
owner, the plaintiff-appellee herein, but a trustee of then Government of the United States (32 Op.
Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and against the claim or title of,
the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347;
U.S.C.A., 282-283.) From August, 1946, when defendant-appellant took possession, to the late of
judgment on February 28, 1948, Allien Property Administration had the absolute control of the
property as trustee of the Government of the United States, with power to dispose of it by sale or
otherwise, as though it were the absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925], 5
F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant were liable to the Allien
Property Administration for rentals, these would not accrue to the benefit of the plaintiff-appellee, the
owner, but to the United States Government.
But there is another ground why the claim or rentals can not be made against defendant-appellant.
There was no agreement between the Alien Property Custodian and the defendant-appellant for the
latter to pay rentals on the property. The existence of an implied agreement to that effect is contrary
to the circumstances. The copra Export Management Company, which preceded the defendantappellant, in the possession and use of the property, does not appear to have paid rentals therefor, as
it occupied it by what the parties denominated a "custodianship agreement," and there is no provision
therein for the payment of rentals or of any compensation for its custody and or occupation and the
use. The Trading with the Enemy Act, as originally enacted, was purely a measure of conversation,
hence, it is very unlikely that rentals were demanded for the use of the property. When the National
coconut Corporation succeeded the Copra Export Management Company in the possession and use of
the property, it must have been also free from payment of rentals, especially as it was Government
corporation, and steps where then being taken by the Philippine Government to secure the property
for the National Coconut Corporation. So that the circumstances do not justify the finding that there
was an implied agreement that the defendant-appellant was to pay for the use and occupation of the
premises at all.
The above considerations show that plaintiff-appellee's claim for rentals before it obtained the
judgment annulling the sale of the Taiwan Tekkosho may not be predicated on any negligence or
offense of the defendant-appellant, or any contract, express or implied, because the Allien Property
Administration was neither a trustee of plaintiff-appellee, nor a privy to the obligations of the Taiwan
Tekkosho, its title being based by legal provision of the seizure of enemy property. We have also tried
in vain to find a law or provision thereof, or any principle in quasi contracts or equity, upon which the
claim can be supported. On the contrary, as defendant-appellant entered into possession without any
expectation of liability for such use and occupation, it is only fair and just that it may not be held liable

therefor. And as to the rents it collected from its lessee, the same should accrue to it as a possessor in
good faith, as this Court has already expressly held. (Resolution, National Coconut Corporation vs.
Geronimo, 83 Phil. 467.)
Lastly, the reservation of this action may not be considered as vesting a new right; if no right to claim
for rentals existed at the time of the reservation, no rights can arise or accrue from such reservation
alone.
Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay
rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the
judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ, concur.

SECOND DIVISION
G.R. No. 183204

January 13, 2014

THE
METROPOLITAN
BANK
AND
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

TRUST

COMPANY, Petitioner,

DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or mutuum, 1 must be paid upon demand by
the depositor.2
This Petition for Review on Certiorari 3 under Rule 45 of the Rules of Court assails the April 2, 2008
Decision4 and the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and
existing under the laws of the Philippines. 6 Respondent Ana Grace Rosales (Rosales) is the owner of
China Golden Bridge Travel Services, 7 a travel agency.8 Respondent Yo Yuk To is the mother of
respondent Rosales.9
In 2000, respondents opened a Joint Peso Account 10 with petitioners Pritil-Tondo Branch. 11 As of
August 4, 2004, respondents Joint Peso Account showed a balance of P2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying
for a retirees visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioners branch
in Escolta to open a savings account, as required by the PLRA. 13 Since Liu Chiu Fang could speak only
in Mandarin, respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch a Joint Dollar
Account15 with an initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents accounts. 17
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre,
filed before the Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No. 03I-25014, 18 against
respondent Rosales.19Petitioner accused respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fangs
dollar account with petitioners Escolta Branch. 20Petitioner alleged that on February 5, 2003, its branch
in Escolta received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu
Fang;21 that in the afternoon of the same day, respondent Rosales went to petitioners Escolta Branch
to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her
dollar deposits in cash;22 that Gutierrez told respondent Rosales to come back the following day
because the bank did not have enough dollars; 23 that on February 6, 2003, respondent Rosales
accompanied an unidentified impostor of Liu Chiu Fang to the bank; 24 that the impostor was able to
withdraw Liu Chiu Fangs dollar deposit in the amount of US$75,000.00; 25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank later discovered that the serial
numbers of the dollar notes deposited by respondents in the amount of US$11,800.00 were the same
as those withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from
the dollar account of Liu Chiu Fang. 27 Respondent Rosales claimed that she did not go to the bank on
February 5, 2003.28Neither did she inform Gutierrez that Liu Chiu Fang was going to close her
account.29 Respondent Rosales further claimed that after Liu Chiu Fang opened an account with
petitioner, she lost track of her.30 Respondent Rosales version of the events that transpired thereafter
is as follows:
On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the
bank to close her account.31 At noon of the same day, respondent Rosales went to the bank to make a
transaction.32While she was transacting with the teller, she caught a glimpse of a woman seated at the
desk of the Branch Operating Officer, Melinda Perez (Perez). 33 After completing her transaction,
respondent Rosales approached Perez who informed her that Liu Chiu Fang had closed her account
and had already left.34 Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang
inquiring about the extension of her PLRA Visa and her dollar account. 36 It was only then that Liu Chiu
Fang found out that her account had been closed without her knowledge. 37 Respondent Rosales then
went to the bank to inform Gutierrez and Perez of the unauthorized withdrawal. 38 On June 23, 2003,

respondent Rosales and Liu Chiu Fang went to the PLRA Office, where they were informed that the
Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed by Liu
Chiu Fang in favor of a certain Richard So.39 Liu Chiu Fang, however, denied executing the SPA. 40 The
following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to
discuss the unauthorized withdrawal.41 During the conference, the bank officers assured Liu Chiu Fang
that the money would be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the
criminal case for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No. 04110895
and raffled to Branch 21, against petitioner. Respondents alleged that they attempted several times to
withdraw their deposits but were unable to because petitioner had placed their accounts under "Hold
Out" status.45 No explanation, however, was given by petitioner as to why it issued the "Hold Out"
order.46 Thus, they prayed that the "Hold Out" order be lifted and that they be allowed to withdraw
their deposits.47 They likewise prayed for actual, moral, and exemplary damages, as well as attorneys
fees.48
Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing
the "Hold Out" order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was
compelled to reimburse Liu Chiu Fang the amount of US$75,000.00 50 and to file a criminal complaint
for Estafa against respondent Rosales.51
While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution
dated February 18, 2005, reversing the dismissal of the criminal complaint. 52 An Information, docketed
as Criminal Case No. 05-236103, 53 was then filed charging respondent Rosales with Estafa before
Branch 14 of the RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision finding petitioner liable for damages for breach of
contract.56 The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the
act of withdrawal of a bank deposit is an act of demand by the creditor.57 The RTC also said that the
recourse of petitioner is against its negligent employees and not against respondents. 58 The dispositive
portion of the Decision reads:
55

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN

BANK & TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw
their Savings and Time Deposits with the agreed interest, actual damages of P50,000.00, moral
damages of P50,000.00, exemplary damages of P30,000.00 and 10% of the amount due
[respondents] as and for attorneys fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages
because "the basis for [respondents] claim for such damages is the professional fee that they paid to
their legal counsel for [respondent] Rosales defense against the criminal complaint of [petitioner] for
estafa before the Office of the City Prosecutor of Manila and not this case." 60 Thus, the CA disposed of
the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21,
Manila in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual
damages to [respondents] Rosales and Yo Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution. 62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANGS FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES,
AND ATTORNEYS FEES.63
Petitioners Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the
Application and Agreement for Deposit Account. 64 It posits that the said clause applies to any and all
kinds of obligation as it does not distinguish between obligations arising ex contractu or ex
delictu.65 Petitioner also contends that the fraud committed by respondent Rosales was clearly
established by evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner likewise

denies that its employees were negligent in releasing the dollars. 68 It claims that it was the deception
employed by respondent Rosales that caused petitioners employees to release Liu Chiu Fangs funds
to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and attorneys fees. It
insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive
or malevolent manner.70

possession or under the control of the Bank, whether left with the Bank for safekeeping or otherwise,
or coming into the hands of the Bank in any way, for so much thereof as will be sufficient to pay any
or all obligations incurred by Depositor under the Account or by reason of any other transactions
between the same parties now existing or hereafter contracted, to sell in any public or private sale any
of such properties or securities of Depositor, and to apply the proceeds to the payment of any
Depositors obligations heretofore mentioned.
xxxx

Respondents Arguments
JOINT ACCOUNT
Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to petitioner.71 They insist that petitioner miserably
failed to prove its accusations against respondent Rosales. 72 In fact, no documentary evidence was
presented to show that respondent Rosales participated in the unauthorized withdrawal. 73 They also
question the fact that the list of the serial numbers of the dollar notes fraudulently withdrawn on
February 6, 2003, was not signed or acknowledged by the alleged impostor.74 Respondents likewise
maintain that what was established during the trial was the negligence of petitioners employees as
they allowed the withdrawal of the funds without properly verifying the identity of the
depositor.75 Furthermore, respondents contend that their deposits are in the nature of a loan; thus,
petitioner had the obligation to return the deposits to them upon demand. 76 Failing to do so makes
petitioner liable to pay respondents moral and exemplary damages, as well as attorneys fees. 77

xxxx
The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a
lien on any balance of the Account and apply all or any part thereof against any indebtedness,
matured or unmatured, that may then be owing to the Bank by any or all of the Depositors. It is
understood that if said indebtedness is only owing from any of the Depositors, then this provision
constitutes the consent by all of the depositors to have the Account answer for the said indebtedness
to the extent of the equal share of the debtor in the amount credited to the Account. 78
Petitioners reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is
misplaced.

Our Ruling

to the instant case.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasicontracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been
rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued
the "Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner
to issue the "Hold Out" order. Accordingly, we agree with the findings of the RTC and the CA that the
"Hold Out" clause does not apply in the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for
issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents deposits on the
Application and Agreement for Deposit Account, which reads:

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably
refused to release respondents deposit despite demand. Having breached its contract with
respondents, petitioner is liable for damages.

Authority to Withhold, Sell and/or Set Off:

Respondents
are
entitled
exemplary damages and attorneys fees.1wphi1

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages. The issue of whether petitioners
employees were negligent in allowing the withdrawal of Liu Chiu Fangs dollar deposits has no bearing
in the resolution of this case. Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all
monies, properties or securities of the Depositor now in or which may hereafter come into the

to

moral

and

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith, 80 or is "guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations."81
In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of the reason for the "Hold Out." 82 Third, the
order was issued prior to the filing of the criminal complaint. Records show that the "Hold Out" order
was issued on July 31, 2003,83 while the criminal complaint was filed only on September 3, 2003. 84 All
these taken together lead us to conclude that petitioner acted in bad faith when it breached its
contract with respondents. As we see it then, respondents are entitled to moral damages.
As to the award of exemplary damages, Article 2229 85 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis. We
need not belabor the fact that the banking industry is impressed with public interest. 87 As such, "the
highest degree of diligence is expected, and high standards of integrity and performance are even
required of it."88 It must therefore "treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship with them." 89 For failing to do this, an
award of exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the Civil
Code.
In closing, it must be stressed that while we recognize that petitioner has the right to protect itself
from fraud or suspicions of fraud, the exercise of his right should be done within the bounds of the law
and in accordance with due process, and not in bad faith or in a wanton disregard of its contractual
obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.
MARIANO
Associate Justice

C.

DEL

CASTILLO

G.R. No. 179337

April 30, 2008

JOSEPH
SALUDAGA, petitioner,
vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of
FEU,respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007
Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November
10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and
dismissing the complaint filed by petitioner; as well as its August 23, 2007 Resolution 4 denying the
Motion for Reconsideration.5
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU)
when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school
premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation
(FEU-NRMF) due to the wound he sustained. 6 Meanwhile, Rosete was brought to the police station
where he explained that the shooting was accidental. He was eventually released considering that no
formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages against respondents on the ground that they
breached their obligation to provide students with a safe and secure environment and an atmosphere
conducive to learning. Respondents, in turn, filed a Third-Party Complaint 7 against Galaxy
Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to
provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to
indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's
fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint
against AFP General Insurance.8
On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive
portion of which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

THIRD DIVISION

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and
severally Joseph Saludaga the amount of P35,298.25 for actual damages with 12%
interest per annum from the filing of the complaint until fully paid; moral damages of

P300,000.00, exemplary damages of P500,000.00, attorney's fees of P100,000.00 and

cost of the suit;
2. Galaxy Management and Development Corp. and its president, Col. Mariano
Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de
Jesus in his capacity as President of FEU) for the above-mentioned amounts;
3. And the 4th party complaint is dismissed for lack of cause of action. No
pronouncement as to costs.
SO ORDERED.9
Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal
portion of which provides, viz:

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY

WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT
FEU.11
Petitioner is suing respondents for damages based on the alleged breach of student-school contract for
a safe learning environment. The pertinent portions of petitioner's Complaint read:
6.0. At the time of plaintiff's confinement, the defendants or any of their representative did
not bother to visit and inquire about his condition. This abject indifference on the part of the
defendants continued even after plaintiff was discharged from the hospital when not even a
word of consolation was heard from them. Plaintiff waited for more than one (1) year for the
defendants to perform their moral obligation but the wait was fruitless. This indifference and
total lack of concern of defendants served to exacerbate plaintiff's miserable condition.
xxxx

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is
hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant
Far Eastern University and its President in Civil Case No. 98-89483 is DISMISSED.
SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on
the following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND
JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A
GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN
THEIR OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION
TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE
AND SECURE EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS
WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE
BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU
NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND
BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and

11.0. Defendants are responsible for ensuring the safety of its students while the latter are
within the University premises. And that should anything untoward happens to any of its
students while they are within the University's premises shall be the responsibility of the
defendants. In this case, defendants, despite being legally and morally bound, miserably failed
to protect plaintiff from injury and thereafter, to mitigate and compensate plaintiff for said
injury;
12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them.
Under this contract, defendants are supposed to ensure that adequate steps are taken to
provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside
defendant FEU's premises. In the instant case, the latter breached this contract when
defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people, their
security guard who was tasked to maintain peace inside the campus. 12
In Philippine School of Business Administration v. Court of Appeals,13 we held that:
When an academic institution accepts students for enrollment, there is established a contract
between them, resulting in bilateral obligations which both parties are bound to comply with.
For its part, the school undertakes to provide the student with an education that would
presumably suffice to equip him with the necessary tools and skills to pursue higher education
or a profession. On the other hand, the student covenants to abide by the school's academic
requirements and observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-in" obligation of providing their
students with an atmosphere that promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher
mathematics or explore the realm of the arts and other sciences when bullets are flying or

grenades exploding in the air or where there looms around the school premises a constant
threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to prevent the breakdown thereof.14
It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such,
there was created a contractual obligation between the two parties. On petitioner's part, he was
obliged to comply with the rules and regulations of the school. On the other hand, respondent FEU, as
a learning institution is mandated to impart knowledge and equip its students with the necessary skills
to pursue higher education or a profession. At the same time, it is obliged to ensure and take
adequate steps to maintain peace and order within the campus.
It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of
its compliance justify, prima facie, a corresponding right of relief.15 In the instant case, we find that,
when petitioner was shot inside the campus by no less the security guard who was hired to maintain
peace and secure the premises, there is a prima facie showing that respondents failed to comply with
its obligation to provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event
because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he
was not their employee;16 and that they complied with their obligation to ensure a safe learning
environment for their students by having exercised due diligence in selecting the security services of
Galaxy.
After a thorough review of the records, we find that respondents failed to discharge the burden of
proving that they exercised due diligence in providing a safe learning environment for their students.
They failed to prove that they ensured that the guards assigned in the campus met the requirements
stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented
during trial; however, no evidence as to the qualifications of Rosete as a security guard for the
university was offered.
Respondents also failed to show that they undertook steps to ascertain and confirm that the security
guards assigned to them actually possess the qualifications required in the Security Service
Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files,
and other vital documents enumerated in its contract with Galaxy. Total reliance on the security
agency about these matters or failure to check the papers stating the qualifications of the guards is
negligence on the part of respondents. A learning institution should not be allowed to completely
relinquish or abdicate security matters in its premises to the security agency it hired. To do so would
result to contracting away its inherent obligation to ensure a safe learning environment for its
students.
Consequently, respondents' defense of force majeure must fail. In order for force majeure to be
considered, respondents must show that no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps

to forestall the possible adverse consequences of such a loss. 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.17
Article 1170 of the Civil Code provides that those who are negligent in the performance of their
obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a
safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the
award of damages that the claimant must have satisfactorily proven during the trial the existence of
the factual basis of the damages and its causal connection to defendant's acts. 18
In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and
other medical expenses.19 While the trial court correctly imposed interest on said amount, however,
the case at bar involves an obligation arising from a contract and not a loan or forbearance of money.
As such, the proper rate of legal interest is six percent (6%) per annum of the amount demanded.
Such interest shall continue to run from the filing of the complaint until the finality of this
Decision.20 After this Decision becomes final and executory, the applicable rate shall be twelve percent
(12%) per annum until its satisfaction.
The other expenses being claimed by petitioner, such as transportation expenses and those incurred in
hiring a personal assistant while recuperating were however not duly supported by receipts. 21 In the
absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art.
2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some
pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of
P20,000.00 as temperate damages is awarded to petitioner.
As regards the award of moral damages, there is no hard and fast rule in the determination of what
would be a fair amount of moral damages since each case must be governed by its own peculiar
circumstances.22 The testimony of petitioner about his physical suffering, mental anguish, fright,
serious anxiety, and moral shock resulting from the shooting incident 23 justify the award of moral
damages. However, moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo
ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the
award of exorbitant damages; they should exercise balanced restrained and measured objectivity to
avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 24 We
deem it just and reasonable under the circumstances to award petitioner moral damages in the
amount of P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is
reasonable in view of Article 2208 of the Civil Code. 25 However, the award of exemplary damages is
deleted considering the absence of proof that respondents acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton
Conglomerate, Inc. v. Agcolicol,26 we held that:

We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages
under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter
was employed by Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and
its security guards are ordinarily no more than requests commonly envisaged in the contract for
services entered into by a principal and a security agency. They cannot be construed as the element of
control as to treat respondents as the employers of Rosete. 28
As held in Mercury Drug Corporation v. Libunao:29

[A] corporation is invested by law with a personality separate and distinct from those of the
persons composing it, such that, save for certain exceptions, corporate officers who entered
into contracts in behalf of the corporation cannot be held personally liable for the liabilities of
the latter. Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when - (1) he assents
to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages to
the corporation, its stockholders or other persons; (2) he consents to the issuance of watered
down stocks or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily
liable with the corporation; or (4) he is made by a specific provision of law personally
answerable for his corporate action.27

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns
the works of its watchmen or security guards to a client, the employer of such guards or
watchmen is such agency, and not the client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence of a good father of a family cannot be
demanded from the said client:
[I]t is settled in our jurisdiction that where the security agency, as here, recruits,
hires and assigns the work of its watchmen or security guards, the agency is the
employer of such guards or watchmen. Liability for illegal or harmful acts committed
by the security guards attaches to the employer agency, and not to the clients or
customers of such agency. As a general rule, a client or customer of a security agency
has no hand in selecting who among the pool of security guards or watchmen
employed by the agency shall be assigned to it; the duty to observe the diligence of a
good father of a family in the selection of the guards cannot, in the ordinary course of
events, be demanded from the client whose premises or property are protected by the
security guards.

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus
should not be held solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the instant case is the breach of the school-student
contract, petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of
the Civil Code, which provides:
Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.

xxxx
The fact that a client company may give instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the security
guards concerned and liable for their wrongful acts or omissions. 31

xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber
Company of the Philippines v. Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural device whereby a 'third party' who is
neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into
the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity, subrogation or any
other relief, in respect of the plaintiff's claim. The third-party complaint is actually independent
of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the
Rules of Court, it would have to be filed independently and separately from the original
complaint by the defendant against the third-party. But the Rules permit defendant to bring in

a third-party defendant or so to speak, to litigate his separate cause of action in respect of

plaintiff's claim against a third-party in the original and principal case with the object of
avoiding circuitry of action and unnecessary proliferation of law suits and of disposing
expeditiously in one litigation the entire subject matter arising from one particular set of
facts.33
Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the
trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is
negligent not only in the selection of its employees but also in their supervision. Indeed, no
administrative sanction was imposed against Rosete despite the shooting incident; moreover, he was
even allowed to go on leave of absence which led eventually to his disappearance. 34 Galaxy also failed
to monitor petitioner's condition or extend the necessary assistance, other than the P5,000.00 initially
given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse petitioner's
medical expenses.
For these acts of negligence and for having supplied respondent FEU with an unqualified security
guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable
to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to
petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly
negligent in directing the affairs of the security agency. It was Imperial who assured petitioner that his
medical expenses will be shouldered by Galaxy but said representations were not fulfilled because
they presumed that petitioner and his family were no longer interested in filing a formal complaint
against them.35

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of

respondents are likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial
areORDERED to jointly and severally pay respondent FEU damages equivalent to the abovementioned amounts awarded to petitioner.
SO ORDERED.
CONSUELO
Associate Justice

YNARES-SANTIAGO

EN BANC

G.R. No. L-36840 May 22, 1973

PEOPLE'S
CAR
vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

INC., plaintiff-appellant,

TEEHANKEE, J.:

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CAG.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint as well as the
August 23, 2007 Resolution denying the Motion for Reconsideration are REVERSED and SET ASIDE.
The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding
respondent FEU liable for damages for breach of its obligation to provide students with a safe and
secure learning atmosphere, is AFFIRMED with the following MODIFICATIONS:

In this appeal from the adverse judgment of the Davao court of first instance limiting plaintiffappellant's recovery under its complaint to the sum of P1,000.00 instead of the actual damages of
P8,489.10 claimed and suffered by it as a direct result of the wrongful acts of defendant security
agency's guard assigned at plaintiff's premises in pursuance of their "Guard Service Contract", the
Court finds merit in the appeal and accordingly reverses the trial court's judgment.

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the
amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of
this Decision. After this decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction;

The appeal was certified to this Court by a special division of the Court of Appeals on a four-to-one
vote as per its resolution of April 14, 1973 that "Since the case was submitted to the court a quo for
decision on the strength of the stipulation of facts, only questions of law can be involved in the present
appeal."

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of
P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation
expenses in the amount of P50,000.00;

The Court has accepted such certification and docketed this appeal on the strength of its own finding
from the records that plaintiff's notice of appeal was expressly to this Court (not to the appellate
court)" on pure questions of law" 1 and its record on appeal accordingly prayed that" the corresponding
records be certified and forwarded to the Honorable Supreme Court." 2 The trial court so approved the
same 3 on July 3, 1971 instead of having required the filing of a petition for review of the judgment
sought to be appealed from directly with this Court, in accordance with the provisions of Republic Act

c. the award of exemplary damages is DELETED.

5440. By some unexplained and hitherto undiscovered error of the clerk of court, furthermore, the
record on appeal was erroneously forwarded to the appellate court rather than to this Court.
The parties submitted the case for judgment on a stipulation of facts. There is thus no dispute as to
the factual bases of plaintiff's complaint for recovery of actual damages against defendant, to wit, that
under the subsisting "Guard Service Contract" between the parties, defendant-appellee as a duly
licensed security service agency undertook in consideration of the payments made by plaintiff to
safeguard and protect the business premises of (plaintiff) from theft, pilferage, robbery, vandalism
and all other unlawful acts of any person or person prejudicial to the interest of (plaintiff)." 4
On April 5, 1970 at around 1:00 A.M., however, defendant's security guard on duty at plaintiff's
premises, "without any authority, consent, approval, knowledge or orders of the plaintiff and/or
defendant brought out of the compound of the plaintiff a car belonging to its customer, and drove said
car for a place or places unknown, abandoning his post as such security guard on duty inside the
plaintiff's compound, and while so driving said car in one of the City streets lost control of said car,
causing the same to fall into a ditch along J.P. Laurel St., Davao City by reason of which the plaintiff's
complaint for qualified theft against said driver, was blottered in the office of the Davao City Police
Department." 5
As a result of these wrongful acts of defendant's security guard, the car of plaintiff's customer, Joseph
Luy, which had been left with plaintiff for servicing and maintenance, "suffered extensive damage in
the total amount of P7,079." 6 besides the car rental value "chargeable to defendant" in the sum of
P1,410.00 for a car that plaintiff had to rent and make available to its said customer to enable him to
pursue his business and occupation for the period of forty-seven (47) days (from April 25 to June 10,
1970) that it took plaintiff to repair the damaged car, 7 or total actual damages incurred by plaintiff in
the sum of P8,489.10.

'Par. 4. Party of the Second Part (defendant) through the negligence

of its guards, after an investigation has been conducted by the Party of
the First Part (plaintiff) wherein the Party of the Second Part has been
duly represented shall assume full responsibilities for any loss or
damages that may occur to any property of the Party of the First Part
for which it is accountable, during the watch hours of the Party of the
Second Part, provided the same is reported to the Party of the Second
Part within twenty-four (24) hours of the occurrence, except where
such loss or damage is due to force majeure, provided however that
after the proper investigation to be made thereof that the guard on
post is found negligent and that the amount of the loss shall not
exceed ONE THOUSAND (P1,000.00) PESOS per guard post.'
'Par. 5 The party of the Second Part assumes the responsibility for
the proper performance by the guards employed, of their duties and
(shall) be solely responsible for the acts done during their watch
hours, the Party of the First Part being specifically released from any
and all liabilities to the former's employee or to the third parties
arising from the acts or omissions done by the guard during their tour
of
duty.' ... 8
The trial court, misreading the above-quoted contractual provisions, held that "the liability of the
defendant in favor of the plaintiff falls under paragraph 4 of the Guard Service Contract" and rendered
judgment "finding the defendant liable to the plaintiff in the amount of P1,000.00 with costs."
Hence, this appeal, which, as already indicated, is meritorious and must be granted.

Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their contract
whereunder defendant assumed "sole responsibility for the acts done during their watch hours" by its
guards, whereas defendant contended, without questioning the amount of the actual damages
incurred by plaintiff, that its liability "shall not exceed one thousand (P1,000.00) pesos per guard post"
under paragraph 4 of their contract.
The parties thus likewise stipulated on this sole issue submitted by them for adjudication, as follows:
Interpretation of the contract, as to the extent of the liability of the defendant to the
plaintiff by reason of the acts of the employees of the defendant is the only issue to be
resolved.
The defendant relies on Par. 4 of the contract to support its contention while the
plaintiff relies on Par. 5 of the same contract in support of its claims against the
defendant. For ready reference they are quoted hereunder:

Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or damage to any
property of plaintiff to "P1,000.00 per guard post," is by its own terms applicable only for loss or
damage 'through thenegligence of its guards ... during the watch hours" provided that the same is
duly reported by plaintiff within 24 hours of the occurrence and the guard's negligence is verified after
proper investigation with the attendance of both contracting parties. Said paragraph is manifestly
inapplicable to the stipulated facts of record, which involve neither property of plaintiff that has been
lost or damaged at its premises nor mere negligence of defendant's security guard on duty.
Here, instead of defendant, through its assigned security guards, complying with its contractual
undertaking 'to safeguard and protect the business premises of (plaintiff) from theft, robbery,
vandalism and all other unlawful acts of any person or persons," defendant's own guard on duty
unlawfully and wrongfully drove out of plaintiffs premises a customer's car, lost control of it on the
highway causing it to fall into a ditch, thereby directly causing plaintiff to incur actual damages in the
total amount of P8,489.10.

Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus incurred,
since under paragraph 5 of their contract it "assumed the responsibility for the proper performance by
the guards employed of their duties and (contracted to) be solely responsible for the acts done during
their watch hours" and "specifically released (plaintiff) from any and all liabilities ... to the third parties
arising from the acts or omissions done by the guards during their tour of duty." As plaintiff had duly
discharged its liability to the third party, its customer, Joseph Luy, for the undisputed damages of
P8,489.10 caused said customer, due to the wanton and unlawful act of defendant's guard, defendant
in turn was clearly liable under the terms of paragraph 5 of their contract to indemnify plaintiff in the
same amount.

SECOND DIVISION

The trial court's approach that "had plaintiff understood the liability of the defendant to fall under
paragraph 5, it should have told Joseph Luy, owner of the car, that under the Guard Service Contract,
it was not liable for the damage but the defendant and had Luy insisted on the liability of the plaintiff,
the latter should have challenged him to bring the matter to court. If Luy accepted the challenge and
instituted an action against the plaintiff, it should have filed a third-party complaint against the
Commando Security Service Agency. But if Luy instituted the action against the plaintiff and the
defendant, the plaintiff should have filed a crossclaim against the latter," 9 was unduly technical and
unrealistic and untenable.

BARREDO, J.:

Plaintiff was in law liable to its customer for the damages caused the customer's car, which had been
entrusted into its custody. Plaintiff therefore was in law justified in making good such damages and
relying in turn on defendant to honor its contract and indemnify it for such undisputed damages, which
had been caused directly by the unlawful and wrongful acts of defendant's security guard in breach of
their contract. As ordained in Article 1159, Civil Code, "obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith."
Plaintiff in law could not tell its customer, as per the trial court's view, that "under the Guard Service
Contract it was not liable for the damage but the defendant" since the customer could not hold
defendant to account for the damages as he had no privity of contract with defendant. Such an
approach of telling the adverse party to go to court, notwithstanding his plainly valid claim, aside from
its ethical deficiency among others, could hardly create any goodwill for plaintiff's business, in the
same way that defendant's baseless attempt to evade fully discharging its contractual liability to
plaintiff cannot be expected to have brought it more business. Worse, the administration of justice is
prejudiced, since the court dockets are unduly burdened with unnecessary litigation.
ACCORDINGLY, the judgment appealed from is hereby reversed and judgment is hereby rendered
sentencing defendant-appellee to pay plaintiff-appellant the sum of P8,489.10 as and by way of
reimbursement of the stipulated actual damages and expenses, as well as the costs of suit in both
instances. It is so ordered.
Makalintal, Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

G.R. No. L-23749 April 29, 1977

FAUSTINO
CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-appellees.

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in Civil
Case No. Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing
the complaint of appellant Cruz for the recovery of improvements he has made on appellees' land and
to compel appellees to convey to him 3,000 square meters of land on three grounds: (1) failure of the
complaint to state a cause of action; (2) the cause of action of plaintiff is unenforceable under the
Statute of Frauds; and (3) the action of the plaintiff has already prescribed.
Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate causes
of action, namely: (1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim
on the land in question on the strength of an "informacion posesoria" ) plaintiff made permanent
improvements valued at P30,400.00 on said land having an area of more or less 20 quinones and for
which he also incurred expenses in the amount of P7,781.74, and since defendants-appellees are
being benefited by said improvements, he is entitled to reimbursement from them of said amounts
and (2) that in 1952, defendants availed of plaintiff's services as an intermediary with the Deudors to
work for the amicable settlement of Civil Case No. Q-135, then pending also in the Court of First
Instance of Quezon City, and involving 50 quinones of land, of Which the 20 quinones aforementioned
form part, and notwithstanding his having performed his services, as in fact, a compromise agreement
entered into on March 16, 1963 between the Deudors and the defendants was approved by the court,
the latter have refused to convey to him the 3,000 square meters of land occupied by him, (a part of
the 20 quinones above) which said defendants had promised to do "within ten years from and after
date of signing of the compromise agreement", as consideration for his services.
Within the Period allowed by the rules, the defendants filed separate motions to dismiss alleging three
Identical grounds: (1) As regards that improvements made by plaintiff, that the complaint states no
cause of action, the agreement regarding the same having been made by plaintiff with the Deudors
and not with the defendants, hence the theory of plaintiff based on Article 2142 of the Code on unjust
enrichment is untenable; and (2) anent the alleged agreement about plaintiffs services as
intermediary in consideration of which, defendants promised to convey to him 3,000 square meters of
land, that the same is unenforceable under the Statute of Frauds, there being nothing in writing about
it, and, in any event, (3) that the action of plaintiff to compel such conveyance has already prescribed.

Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that the Statute
of Frauds cannot be invoked by defendants, not only because Article 1403 of the Civil Code refers only
to "sale of real property or of an interest therein" and not to promises to convey real property like the
one supposedly promised by defendants to him, but also because, he, the plaintiff has already
performed his part of the agreement, hence the agreement has already been partly executed and not
merely executory within the contemplation of the Statute; and that his action has not prescribed for
the reason that defendants had ten years to comply and only after the said ten years did his cause of
action accrue, that is, ten years after March 16, 1963, the date of the approval of the compromise
agreement, and his complaint was filed on January 24, 1964.
Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13, 1964:
In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed that
the complaint against it be dismissed on the ground that (1) the claim on which the
action is founded is unenforceable under the provision of the Statute of Frauds; and
(2) the plaintiff's action, if any has already prescribed. In the other motion of February
11, 1964, defendant J. M. Tuason & Co., Inc. sought the dismissal of the plaintiffs
complaint on the ground that it states no cause of action and on the Identical grounds
stated in the motion to dismiss of defendant Gregorio Araneta, Inc. The said motions
are duly opposed by the plaintiff.
From the allegations of the complaint, it appears that, by virtue of an agreement
arrived at in 1948 by the plaintiff and the Deudors, the former assisted the latter in
clearing, improving, subdividing and selling the large tract of land consisting of 50
quinones covered by the informacion posesoria in the name of the late Telesforo
Deudor and incurred expenses, which are valued approximately at P38,400.00 and
P7,781.74, respectively; and, for the reasons that said improvements are being used
and enjoyed by the defendants, the plaintiff is seeking the reimbursement for the
services and expenses stated above from the defendants.
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for the
reimbursement of the amounts of P38,400.00 and P7,781.74 is concerned, it is not a
privy to the plaintiff's agreement to assist the Deudors n improving the 50 quinones.
On the other hand, the plaintiff countered that, by holding and utilizing the
improvements introduced by him, the defendants are unjustly enriching and benefiting
at the expense of the plaintiff; and that said improvements constitute a lien or charge
of the property itself
On the issue that the complaint insofar as it claims the reimbursement for the services
rendered and expenses incurred by the plaintiff, states no cause of action, the Court is
of the opinion that the same is well-founded. It is found that the defendants are not
parties to the supposed express contract entered into by and between the plaintiff and
the Deudors for the clearing and improvement of the 50 quinones. Furthermore in
order that the alleged improvement may be considered a lien or charge on the

property, the same should have been made in good faith and under the mistake as to
the title. The Court can take judicial notice of the fact that the tract of land supposedly
improved by the plaintiff had been registered way back in 1914 in the name of the
predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This fact is confirmed in
the decision rendered by the Supreme Court on July 31, 1956 in Case G. R. No. L5079 entitled J.M. Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the
case, the plaintiff cannot claim good faith and mistake as to the title of the land.
On the issue of statute of fraud, the Court believes that same is applicable to the
instant case. The allegation in par. 12 of the complaint states that the defendants
promised and agreed to cede, transfer and convey unto the plaintiff the 3,000 square
meters of land in consideration of certain services to be rendered then. it is clear that
the alleged agreement involves an interest in real property. Under the provisions of
See. 2(e) of Article 1403 of the Civil Code, such agreement is not enforceable as it is
not in writing and subscribed by the party charged.
On the issue of statute of limitations, the Court holds that the plaintiff's action has
prescribed. It is alleged in par. 11 of the complaint that, sometime in 1952, the
defendants approached the plaintiff to prevail upon the Deudors to enter to a
compromise agreement in Civil Case No. Q-135 and allied cases. Furthermore, par. 13
and 14 of the complaint alleged that the plaintiff acted as emissary of both parties in
conveying their respective proposals and couter-proposals until the final settlement
was effected on March 16, 1953 and approved by Court on April 11, 1953. In the
present action, which was instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between him and the defendants in
1952, which was already prescribed.
WHEREFORE, the plaintiffs
pronouncement as to costs.

complaint

is

hereby

ordered

DISMISSED

without

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20, 1964 as
follows:
Plaintiff through undersigned counsel and to this Honorable Court, respectfully moves
to reconsider its Order bearing date of 13 August 1964, on the following grounds:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST
DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES, IS CONCERNED;

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS., THE SAME HAS
NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO;
ARGUMENT

the contract for the improvement of the properties was solely between the Deudors
and plaintiff, and defendants are not privies to it. Now, plaintiff's theory is that
defendants are nonetheless liable since they are utilizing and enjoying the benefit's of
said improvements. Thus under paragraph 16 of "he complaint, it is alleged:

Plaintiff's complaint contains two (2) causes of action the first being an action for
sum of money in the amount of P7,781.74 representing actual expenses and
P38,400.00 as reasonable compensation for services in improving the 50 quinones
now in the possession of defendants. The second cause of action deals with the 3,000
sq. ms. which defendants have agreed to transfer into Plaintiff for services rendered in
effecting the compromise between the Deudors and defendants;

(16) That the services and personal expenses of plaintiff mentioned in

paragraph 7 hereof were rendered and in fact paid by him to improve,
as they in fact resulted in considerable improvement of the 50
quinones, and defendants being now in possession of and utilizing said
improvements should reimburse and pay plaintiff for such services and
expenses.

Under its order of August 3, 1964, this Honorable Court dismissed the claim for sum of
money on the ground that the complaint does not state a cause of action against
defendants. We respectfully submit:

Plaintiff's cause of action is premised inter alia, on the theory of unjust enrichment
under Article 2142 of the civil Code:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST

DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM FOR PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES IS CONCERNED.

ART. 2142. Certain lawful voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shill be
unjustly enriched or benefited at the expense of another.
In like vein, Article 19 of the same Code enjoins that:

Said this Honorable Court (at p. 2, Order):

ORDER
xxx xxx xxx
On the issue that the complaint, in so far as it claims the reimbursement for the
services rendered and expenses incurred by the plaintiff, states no cause of action, the
Court is of the opinion that the same is well-founded. It is found that the defendants
are not parties to the supposed express contract entered into by and between the
plaintiff and the Deudors for the clearing and improvement of the 50 quinones.
Furthermore, in order that the alleged improvement may he considered a lien or
charge on the property, the same should have been made in good faith and under the
mistake as to title. The Court can take judicial notice of the fact that the tract of land
supposedly improved by the plaintiff had been registered way back in 1914 in the
name of the predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This fact is
confirmed in the decision rendered by the Supreme Court on July 31, 1956 in case G.
R. No. L-5079 entitled 'J M. Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such
being the case, the plaintiff cannot claim good faith and mistake as to the title of the
land.
The position of this Honorable Court (supra) is that the complaint does not state a
cause of action in so far as the claim for services and expenses is concerned because

ART. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give every-one his due and observe honesty and good faith.
We respectfully draw the attention of this Honorable Court to the fact that ARTICLE
2142 (SUPRA) DEALS WITH QUASI-CONTRACTS or situations WHERE THERE IS NO
CONTRACT BETWEEN THE PARTIES TO THE ACTION. Further, as we can readily see
from the title thereof (Title XVII), that the Same bears the designation 'EXTRA
CONTRACTUAL OBLIGATIONS' or obligations which do not arise from contracts. While
it is true that there was no agreement between plaintiff and defendants herein for the
improvement of the 50 quinones since the latter are presently enjoying and utilizing
the benefits brought about through plaintiff's labor and expenses, defendants should
pay and reimburse him therefor under the principle that 'no one may enrich himself at
the expense of another.' In this posture, the complaint states a cause of action against
the defendants.
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS. THE SAME HAS
NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.
The Statute of Frauds is CLEARLY inapplicable to this case:
At page 2 of this Honorable Court's order dated 13 August 1964, the Court ruled as
follows:

ORDER

proposals until succeeded in convinzing the DEUDORS to settle with defendants

amicably. Thus, on March 16, 1953, a Compromise Agreement was entered into by
and between the DEUDORS and the defendant companies; and on April 11, 1953, this
agreement was approved by this Honorable Court;

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is
applicable to the instant Case, The allegation in par. 12 of the
complaint states that the defendants promised and agree to cede,
transfer and convey unto the plaintiff, 3,000 square meters of land in
consideration of certain services to be rendered then. It is clear that
the alleged agreement involves an interest in real property. Under the
provisions of Sec. 2(e) of Article 1403 of the Civil Code, such
agreement is not enforceable as it is not in writing and subscribed by
the party charged.
To bring this issue in sharper focus, shall reproduce not only paragraph 12 of the
complaint but also the other pertinent paragraphs therein contained. Paragraph 12
states thus:
COMPLAINT
xxx xxx xxx
12). That plaintiff conferred with the aforesaid representatives of defendants several
times and on these occasions, the latter promised and agreed to cede, transfer and
convey unto plaintiff the 3,000 sq. ms. (now known as Lots 16-B, 17 and 18) which
plaintiff was then occupying and continues to occupy as of this writing, for and in
consideration of the following conditions:
(a) That plaintiff succeed in convincing the DEUDORS to enter into a
compromise agreement and that such agreement be actually entered
into by and between the DEUDORS and defendant companies;
(b) That as of date of signing the compromise agreement, plaintiff
shall be the owner of the 3,000 sq. ms. but the documents evidencing
his title over this property shall be executed and delivered by
defendants to plaintiff within ten (10) years from and after date of
signing of the compromise agreement;
(c) That plaintiff shall, without any monetary expense of his part,
assist in clearing the 20 quinones of its occupants;
13). That in order to effect a compromise between the parties. plaintiff not only as well
acted as emissary of both parties in conveying their respective proposals and counter-

14). That in order to comply with his other obligations under his agreement with
defendant companies, plaintiff had to confer with the occupants of the property,
exposing himself to physical harm, convincing said occupants to leave the premises
and to refrain from resorting to physical violence in resisting defendants' demands to
vacate;
That plaintiff further assisted defendants' employees in the actual
demolition and transfer of all the houses within the perimeter of the 20
quinones until the end of 1955, when said area was totally cleared and
the houses transferred to another area designated by the defendants
as 'Capt. Cruz Block' in Masambong, Quezon City. (Pars. 12, 13 and
14, Complaint; Emphasis supplied)
From the foregoing, it is clear then the agreement between the parties mentioned in
paragraph 12 (supra) of the complaint has already been fully EXECUTED ON ONE
PART, namely by the plaintiff. Regarding the applicability of the statute of frauds (Art.
1403, Civil Code), it has been uniformly held that the statute of frauds IS APPLICABLE
ONLY TO EXECUTORY CONTRACTS BUT NOT WHERE THE CONTRACT HAS BEEN
PARTLY EXECUTED:
SAME ACTION TO ENFORCE. The statute of frauds has
been uniformly interpreted to be applicable to executory and not to
completed or contracts. Performance of the contracts takes it out of
the operation of the statute. ...
The statute of the frauds is not applicable to contracts which are either
totally or partially performed, on the theory that there is a wide field
for the commission of frauds in executory contracts which can only be
prevented by requiring them to be in writing, a facts which is reduced
to a minimum in executed contracts because the intention of the
parties becomes apparent buy their execution and execution, in mots
cases, concluded the right the parties. ... The partial performance may
be proved by either documentary or oral evidence. (At pp. 564-565,
Tolentino's Civil Code of the Philippines, Vol. IV, 1962 Ed.; Emphasis
supplied).
Authorities in support of the foregoing rule are legion. Thus Mr. Justice Moran in his
'Comments on the Rules of Court', Vol. III, 1974 Ed., at p. 167, states:

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY

CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY
PERFORMED ARE WITHOUT THE STATUE. The statute of frauds is
applicable only to executory contracts. It is neither applicable to
executed contracts nor to contracts partially performed. The reason is
simple. In executory contracts there is a wide field for fraud because
unless they be in writing there is no palpable evidence of the intention
of the contracting parties. The statute has been enacted to prevent
fraud. On the other hand the commission of fraud in executed
contracts is reduced to minimum in executed contracts because (1) the
intention of the parties is made apparent by the execution and (2)
execution concludes, in most cases, the rights of the parties.
(Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the
plaintiff has fulfilled ALL his obligation under the agreement between him defendants
concerning the 3,000 sq. ms. over which the latter had agreed to execute the proper
documents of transfer. This fact is further projected in paragraph 15 of the complaint
where plaintiff states;
15). That in or about the middle of 1963, after all the conditions
stated in paragraph 12 hereof had been fulfilled and fully complied
with, plaintiff demanded of said defendants that they execute the Deed
of Conveyance in his favor and deliver the title certificate in his name,
over the 3,000 sq. ms. but defendants failed and refused and continue
to fail and refuse to heed his demands. (par. 15, complaint; Emphasis
supplied).
In view of the foregoing, we respectfully submit that this Honorable court erred in
holding that the statute of frauds is applicable to plaintiff's claim over the 3,000 sq.
ms. There having been full performance of the contract on plaintiff's part, the same
takes this case out of the context of said statute.
Plaintiff's Cause of Action had NOT Prescribed:
With all due respect to this Honorable court, we also submit that the Court committed
error in holding that this action has prescribed:
ORDER
xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the
plaintiff's action has prescribed. It is alleged in par. III of the complaint
that, sometime in 1952, the defendants approached the plaintiff to
prevail upon the Deudors to enter into a compromise agreement in
Civil Case No. Q-135 and allied cases. Furthermore, pars. 13 and 14 of
the complaint alleged that plaintiff acted as emissary of both parties in
conveying their respective proposals and counter-proposals until the
final settlement was affected on March 16, 1953 and approved by the
Court on April 11, 1953. In the present actin, which was instituted on
January 24, 1964, the plaintiff is seeking to enforce the supposed
agreement entered into between him and the defendants in 1952,
which has already proscribed. (at p. 3, Order).
The present action has not prescribed, especially when we consider carefully the terms
of the agreement between plaintiff and the defendants. First, we must draw the
attention of this Honorable Court to the fact that this is an action to compel defendants
to execute a Deed of Conveyance over the 3,000 sq. ms. subject of their agreement.
In paragraph 12 of the complaint, the terms and conditions of the contract between
the parties are spelled out. Paragraph 12 (b) of the complaint states:
(b) That as of date of signing the compromise agreement, plaintiff
shall be the owner of the 3,000 sq. ms. but the documents evidencing
his title over this property shall be executed and delivered by
defendants to plaintiff within ten (10) years from and after date of
signing of the compromise agreement. (Emphasis supplied).
The compromise agreement between defendants and the Deudors which was conclude
through the efforts of plaintiff, was signed on 16 March 1953. Therefore, the
defendants had ten (10) years signed on 16 March 1953. Therefore, the defendants
had ten (10) years from said date within which to execute the deed of conveyance in
favor of plaintiff over the 3,000 sq. ms. As long as the 10 years period has not
expired, plaintiff had no right to compel defendants to execute the document and the
latter were under no obligation to do so. Now, this 10-year period elapsed on March
16, 1963. THEN and ONLY THEN does plaintiff's cause of action plaintiff on March 17,
1963. Thus, under paragraph 15, of the complaint (supra) plaintiff made demands
upon defendants for the execution of the deed 'in or about the middle of 1963.
Since the contract now sought to be enforced was not reduced to writing, plaintiff's
cause of action expires on March 16, 1969 or six years from March 16, 1963 WHEN
THE CAUSE OF ACTION ACCRUED (Art. 1145, Civil Code).
In this posture, we gain respectfully submit that this Honorable Court erred in holding
that plaintiff's action has prescribed.

PRAYER
WHEREFORE, it is respectfully prayed that " Honorable Court reconsider its Order
dated August 13, 1964; and issue another order denying the motions to dismiss of
defendants G. Araneta, Inc. and J. M. Tuason Co. Inc. for lack of merit. (Pp. 70-85,
Record on Appeal.)
Defendants filed an opposition on the main ground that "the arguments adduced by the plaintiff are
merely reiterations of his arguments contained in his Rejoinder to Reply and Opposition, which have
not only been refuted in herein defendant's Motion to Dismiss and Reply but already passed upon by
this Honorable Court."
On September 7, 1964, the trial court denied the motion for reconsiderations thus:
After considering the plaintiff's Motion for Reconsideration of August 20, 1964 and it
appearing that the grounds relied upon in said motion are mere repetition of those
already resolved and discussed by this Court in the order of August 13, 1964, the
instant motion is hereby denied and the findings and conclusions arrived at by the
Court in its order of August 13, 1964 are hereby reiterated and affirmed.
SO ORDERED. (Page 90, Rec. on Appeal.)
Under date of September 24, 1964, plaintiff filed his record on appeal.
In his brief, appellant poses and discusses the following assignments of error:
I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND
THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE
UNDER THE STATUTE OF FRAUDS;
II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING
APPELLANT'S COMPLAINT ON THE GROUND THAT HIS CLAIM OVER THE 3,000 SQ. MS.
IS ALLEGEDLY BARRED BY THE STATUTE OF LIMITATIONS; and
III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT FOR FAILURE
TO STATE A CAUSE OF ACTION IN SO FAR AS APPELLANT'S CLAIM FOR
REIMBURSEMENT OF EXPENSES AND FOR SERVICES RENDERED IN THE
IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED.
We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It is
elementary that the Statute refers to specific kinds of transactions and that it cannot apply to any that
is not enumerated therein. And the only agreements or contracts covered thereby are the following:

(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2) Those do not comply with the Statute of Frauds as set forth in this number, In the
following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum:
(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein:
(f) a representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract. (Art. 1403,
civil Code.)
In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square meters of
land which he claims defendants promised to do in consideration of his services as mediator or
intermediary in effecting a compromise of the civil action, Civil Case No. 135, between the defendants
and the Deudors. In no sense may such alleged contract be considered as being a "sale of real
property or of any interest therein." Indeed, not all dealings involving interest in real property come
under the Statute.

Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the bargains to
induce the Deudors to amicably settle their differences with defendants as, in fact, on March 16, 1963,
through his efforts, a compromise agreement between these parties was approved by the court. In
other words, the agreement in question has already been partially consummated, and is no longer
merely executory. And it is likewise a fundamental principle governing the application of the Statute
that the contract in dispute should be purely executory on the part of both parties thereto.
We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied
upon by appellant, that in several cases We have decided, We have declared the same rescinded and
of no effect. In J. M. Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123, the Court held:
It is also worthy of note that the compromise between Deudors and Tuason, upon
which Sanvictores predicates his right to buy the lot he occupies, has been validly
rescinded and set aside, as recognized by this Court in its decision in G.R. No. L13768, Deudor vs. Tuason, promulgated on May 30, 1961.
We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6 SCRA 938. Thus,
viewed from what would be the ultimate conclusion of appellant's case, We entertain grave doubts as
to whether or not he can successfully maintain his alleged cause of action against defendants,
considering that the compromise agreement that he invokes did not actually materialize and
defendants have not benefited therefrom, not to mention the undisputed fact that, as pointed out by
appellees, appellant's other attempt to secure the same 3,000 square meters via the judicial
enforcement of the compromise agreement in which they were supposed to be reserved for him has
already been repudiated by the courts. (pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)
As regards appellant's third assignment of error, We hold that the allegations in his complaint do not
sufficiently Appellants' reliance. on Article 2142 of Civil Code is misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasicontract to the end that no one shall be unjustly enriched or benefited at the expense
of another.
From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge
as against one party when the subject mater thereof is already covered by an existing contract with
another party. Predicated on the principle that no one should be allowed to unjustly enrich himself at
the expense of another, Article 2124 creates the legal fiction of a quasi-contract precisely because of
the absence of any actual agreement between the parties concerned. Corollarily, if the one who claims
having enriched somebody has done so pursuant to a contract with a third party, his cause of action
should be against the latter, who in turn may, if there is any ground therefor, seek relief against the
party benefited. It is essential that the act by which the defendant is benefited must have been
voluntary and unilateral on the part of the plaintiff. As one distinguished civilian puts it, "The act is
voluntary. because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is
unilateral, because it arises from the sole will of the actor who is not previously bound by any

reciprocal or bilateral agreement. The reason why the law creates a juridical relations and imposes
certain obligation is to prevent a situation where a person is able to benefit or take advantage of such
lawful, voluntary and unilateral acts at the expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI,
p. 748, 1969 ed.) In the case at bar, since appellant has a clearer and more direct recourse against
the Deudors with whom he had entered into an agreement regarding the improvements and
expenditures made by him on the land of appellees. it Cannot be said, in the sense contemplated in
Article 2142, that appellees have been enriched at the expense of appellant.
In the ultimate. therefore, Our holding above that appellant's first two assignments of error are well
taken cannot save the day for him. Aside from his having no cause of action against appellees, there is
one plain error of omission. We have found in the order of the trial court which is as good a ground as
any other for Us to terminate this case favorably to appellees. In said order Which We have quoted in
full earlier in this opinion, the trial court ruled that "the grounds relied upon in said motion are mere
repetitions of those already resolved and discussed by this Court in the order of August 13, 1964", an
observation which We fully share. Virtually, therefore. appellant's motion for reconsideration was ruled
to be pro-forma. Indeed, a cursory reading of the record on appeal reveals that appellant's motion for
reconsideration above-quoted contained exactly the same arguments and manner of discussion as his
February 6, 1964 "Opposition to Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25,
Rec. on Appeal) as well as his February 17, 1964 "Opposition to Motion to Dismiss of Defendant J. M.
Tuason & Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to Reply Oil Defendant
J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We cannot see anything in said motion for
reconsideration that is substantially different from the above oppositions and rejoinder he had
previously submitted and which the trial court had already considered when it rendered its main order
of dismissal. Consequently, appellant's motion for reconsideration did not suspend his period for
appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this point was covered by appellees'
"Opposition to Motion for Reconsideration" (pp. 8689), hence, within the frame of the issues below, it
is within the ambit of Our authority as the Supreme Court to consider the same here even if it is not
discussed in the briefs of the parties. (Insular Life Assurance Co., Ltd. Employees Association-NATU vs.
Insular Life Assurance Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. No. L-25291).
Now, the impugned main order was issued on August 13, 1964, while the appeal was made on
September 24, 1964 or 42 days later. Clearly, this is beyond the 30-day reglementary period for
appeal. Hence, the subject order of dismissal was already final and executory when appellant filed his
appeal.
WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.

EN BANC
G.R. No. L-9188 December 4, 1914

GUTIERREZ
vs.
ENGRACIO ORENSE, defendant-appellant.
William
A.
Kincaid,
Thos.
Rafael de la Sierra for appellee.

L.

Hartigan,

HERMANOS, plaintiff-appellee,

and

Ceferino

M.

Villareal

for

appellant.

TORRES, J.:
Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14,
1913, by the Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate
delivery of the property in question, through a public instrument, by transferring and conveying to the
plaintiff all his rights in the property described in the complaint and to pay it the sum of P780, as
damages, and the costs of the suit.
On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the
Court of First Instance of Albay against Engacio Orense, in which he set forth that on and before
February 14, 1907, the defendant Orense had been the owner of a parcel of land, with the buildings
and improvements thereon, situated in the pueblo of Guinobatan, Albay, the location, area and
boundaries of which were specified in the complaint; that the said property has up to date been
recorded in the new property registry in the name of the said Orense, according to certificate No. 5,
with the boundaries therein given; that, on February 14, 1907, Jose Duran, a nephew of the
defendant, with the latter's knowledge and consent, executed before a notary a public instrument
whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned property, the
vendor Duran reserving to himself the right to repurchase it for the same price within a period of four
years from the date of the said instrument; that the plaintiff company had not entered into possession
of the purchased property, owing to its continued occupancy by the defendant and his nephew, Jose
Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force
up to February 14, 1911; that the said instrument of sale of the property, executed by Jose Duran,
was publicly and freely confirmed and ratified by the defendant Orense; that, in order to perfect the
title to the said property, but that the defendant Orense refused to do so, without any justifiable cause
or reason, wherefore he should be compelled to execute the said deed by an express order of the
court, for Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price
of the sale which he received, nor pay any sum whatever for the losses and damages occasioned by
the said sale, aside from the fact that the plaintiff had suffered damage by losing the present value of
the property, which was worth P3,000; that, unless such deed of final conveyance were executed in
behalf of the plaintiff company, it would be injured by the fraud perpetrated by the vendor, Duran, in
connivance with the defendant; that the latter had been occupying the said property since February
14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him for its
payment at the rate of P30 per month, the just and reasonable value for the occupancy of the said
property, the possession of which the defendant likewise refused to deliver to the plaintiff company, in
spite of the continuous demands made upon him, the defendant, with bad faith and to the prejudice of

the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the said
property. Therefore it was prayed that judgment be rendered by holding that the land and
improvements in question belong legitimately and exclusively to the plaintiff, and ordering the
defendant to execute in the plaintiff's behalf the said instrument of transfer and conveyance of the
property and of all the right, interest, title and share which the defendant has therein; that the
defendant be sentenced to pay P30 per month for damages and rental of the property from February
14, 1911, and that, in case these remedies were not granted to the plaintiff, the defendant be
sentenced to pay to it the sum of P3,000 as damages, together with interest thereon since the date of
the institution of this suit, and to pay the costs and other legal expenses.
The demurrer filed to the amended complaint was overruled, with exception on the part of the
defendant, whose counsel made a general denial of the allegations contained in the complaint,
excepting those that were admitted, and specifically denied paragraph 4 thereof to the effect that on
February 14, 1907, Jose Duran executed the deed of sale of the property in favor of the plaintiff with
the defendant's knowledge and consent.1awphil.net
As the first special defense, counsel for the defendant alleged that the facts set forth in the complaint
with respect to the execution of the deed did not constitute a cause of action, nor did those alleged in
the other form of action for the collection of P3,000, the value of the realty.
As the second special defense, he alleged that the defendant was the lawful owner of the property
claimed in the complaint, as his ownership was recorded in the property registry, and that, since his
title had been registered under the proceedings in rem prescribed by Act No. 496, it was conclusive
against the plaintiff and the pretended rights alleged to have been acquired by Jose Duran prior to
such registration could not now prevail; that the defendant had not executed any written power of
attorney nor given any verbal authority to Jose Duran in order that the latter might, in his name and
representation, sell the said property to the plaintiff company; that the defendant's knowledge of the
said sale was acquired long after the execution of the contract of sale between Duran and Gutierrez
Hermanos, and that prior thereto the defendant did not intentionally and deliberately perform any act
such as might have induced the plaintiff to believe that Duran was empowered and authorized by the
defendant and which would warrant him in acting to his own detriment, under the influence of that
belief. Counsel therefore prayed that the defendant be absolved from the complaint and that the
plaintiff be sentenced to pay the costs and to hold his peace forever.
After the hearing of the case and an examination of the evidence introduced by both parties, the court
rendered the judgment aforementioned, to which counsel for the defendant excepted and moved for a
new trial. This motion was denied, an exception was taken by the defendant and, upon presentation of
the proper bill of exceptions, the same was approved, certified and forwarded to the clerk of his court.
This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and
a masonry house with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner
of the property, Engracio Orense, for the sum of P1,500 by means of a notarial instrument executed
and ratified on February 14, 1907.

After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the
property to the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of
P30 per month for its use and occupation since February 14, 1911, when the period for its repurchase
terminated. His refusal was based on the allegations that he had been and was then the owner of the
said property, which was registered in his name in the property registry; that he had not executed any
written power of attorney to Jose Duran, nor had he given the latter any verbal authorization to sell
the said property to the plaintiff firm in his name; and that, prior to the execution of the deed of sale,
the defendant performed no act such as might have induced the plaintiff to believe that Jose Duran
was empowered and authorized by the defendant to effect the said sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province,
with estafa, for having represented himself in the said deed of sale to be the absolute owner of the
aforesaid land and improvements, whereas in reality they did not belong to him, but to the defendant
Orense. However, at the trial of the case Engracio Orense, called as a witness, being interrogated by
the fiscal as to whether he and consented to Duran's selling the said property under right of
redemption to the firm of Gutierrez Hermanos, replied that he had. In view of this statement by the
defendant, the court acquitted Jose Duran of the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense,
the owner of the property, to the effect that he had consented to his nephew Duran's selling the
property under right of repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant
praying, among other remedies, that the defendant Orense be compelled to execute a deed for the
transfer and conveyance to the plaintiff company of all the right, title and interest with Orense had in
the property sold, and to pay to the same the rental of the property due from February 14, 1911. itcalf
Notwithstanding the allegations of the defendant, the record in this case shows that he did give his
consent in order that his nephew, Jose Duran, might sell the property in question to Gutierrez
Hermanos, and that he did thereafter confirm and ratify the sale by means of a public instrument
executed before a notary.
It having been proven at the trial that he gave his consent to the said sale, it follows that the
defendant conferred verbal, or at least implied, power of agency upon his nephew Duran, who
accepted it in the same way by selling the said property. The principal must therefore fulfill all the
obligations contracted by the agent, who acted within the scope of his authority. (Civil Code, arts.
1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable
that the defendant, the owner of the property, approved the action of his nephew, who in this case
acted as the manager of his uncle's business, and Orense'r ratification produced the effect of an
express authorization to make the said sale. (Civil Code, arts. 1888 and 1892.)

Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being
authorized by him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his authorization nor legal
representation shall be void, unless it should be ratified by the person in whose name it was
executed before being revoked by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of
Duran for estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran,
and, pursuant to article 1313 of the Civil Code, remedies all defects which the contract may have
contained from the moment of its execution.
The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the
beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its
execution by the confirmation solemnly made by the said owner upon his stating under oath to the
judge that he himself consented to his nephew Jose Duran's making the said sale. Moreover, pursuant
to article 1309 of the Code, the right of action for nullification that could have been brought became
legally extinguished from the moment the contract was validly confirmed and ratified, and, in the
present case, it is unquestionable that the defendant did confirm the said contract of sale and consent
to its execution.
On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted,
and it would not be just that the said testimony, expressive of his consent to the sale of his property,
which determined the acquittal of his nephew, Jose Duran, who then acted as his business manager,
and which testimony wiped out the deception that in the beginning appeared to have been practiced
by the said Duran, should not now serve in passing upon the conduct of Engracio Orense in relation to
the firm of Gutierrez Hermanos in order to prove his consent to the sale of his property, for, had it not
been for the consent admitted by the defendant Orense, the plaintiff would have been the victim of
estafa.
If the defendant Orense acknowledged and admitted under oath that he had consented to Jose
Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for
him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500 for the said
property.
The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is
alleged to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of
Civil Procedure, because the authority which Orense may have given to Duran to make the said
contract of sale is not shown to have been in writing and signed by Orense, but the record discloses
satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale
executed in a public instrument by his nephew Jose Duran. Such consent was proven in a criminal
action by the sworn testimony of the principal and presented in this civil suit by other sworn testimony
of the same principal and by other evidence to which the defendant made no objection. Therefore the

principal is bound to abide by the consequences of his agency as though it had actually been given in
writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241;
Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)

The parties have come to this Court for relief and accordingly, our responsibility is to give them that
relief pursuant to the decree of law.
The antecedent facts are quoted from the decision

The repeated and successive statements made by the defendant Orense in two actions, wherein he
affirmed that he had given his consent to the sale of his property, meet the requirements of the law
and legally excuse the lack of written authority, and, as they are a full ratification of the acts executed
by his nephew Jose Duran, they produce the effects of an express power of agency.
The judgment appealed from in harmony with the law and the merits of the case, and the errors
assigned thereto have been duly refuted by the foregoing considerations, so it should be affirmed.
The judgment appealed from is hereby affirmed, with the costs against the appellant.
Arellano, C.J., Johnson, Carson, Moreland and Araullo, JJ., concur.

SECOND DIVISION
G.R. No. L-44546 January 29, 1988
RUSTICO
ADILLE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO
ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.

SARMIENTO, J.:
In issue herein are property and property rights, a familiar subject of controversy and a wellspring of
enormous conflict that has led not only to protracted legal entanglements but to even more bitter
consequences, like strained relationships and even the forfeiture of lives. It is a question that likewise
reflects a tragic commentary on prevailing social and cultural values and institutions, where, as one
observer notes, wealth and its accumulation are the basis of self-fulfillment and where property is held
as sacred as life itself. "It is in the defense of his property," says this modern thinker, that one "will
mobilize his deepest protective devices, and anybody that threatens his possessions will arouse his
most passionate enmity." 1
The task of this Court, however, is not to judge the wisdom of values; the burden of reconstructing the
social order is shouldered by the political leadership-and the people themselves.

appealed from:

xxx xxx xxx

... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi
City with an area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her
own private property; she married twice in her lifetime; the first, with one Bernabe
Adille, with whom she had as an only child, herein defendant Rustico Adille; in her
second marriage with one Procopio Asejo, her children were herein plaintiffs, now,
sometime in 1939, said Felisa sold the property in pacto de retro to certain 3rd
persons, period of repurchase being 3 years, but she died in 1942 without being able
to redeem and after her death, but during the period of redemption, herein defendant
repurchased, by himself alone, and after that, he executed a deed of extra-judicial
partition representing himself to be the only heir and child of his mother Felisa with
the consequence that he was able to secure title in his name alone also, so that OCT.
No. 21137 in the name of his mother was transferred to his name, that was in 1955;
that was why after some efforts of compromise had failed, his half-brothers and
sisters, herein plaintiffs, filed present case for partition with accounting on the position
that he was only a trustee on an implied trust when he redeemed,-and this is the
evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was occupying
a portion, defendant counterclaimed for her to vacate that,
Well then, after hearing the evidence, trial Judge sustained defendant in his position
that he was and became absolute owner, he was not a trustee, and therefore,
dismissed case and also condemned plaintiff occupant, Emeteria to vacate; it is
because of this that plaintiffs have come here and contend that trial court erred in:
I. ... declaring the defendant absolute owner of the property;
II. ... not ordering the partition of the property; and
III. ... ordering one of the plaintiffs who is in possession of the portion of the property
to vacate the land, p. 1 Appellant's brief.
which can be reduced to simple question of whether or not on the basis of evidence and law, judgment
appealed from should be maintained. 3
xxx xxx xxx

The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-appellants, the
private respondents herein. The petitioner now appeals, by way of certiorari, from the Court's
decision.
We required the private respondents to file a comment and thereafter, having given due course to the
petition, directed the parties to file their briefs. Only the petitioner, however, filed a brief, and the
private respondents having failed to file one, we declared the case submitted for decision.
The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property
held in common?
Essentially, it is the petitioner's contention that the property subject of dispute devolved upon him
upon the failure of his co-heirs to join him in its redemption within the period required by law. He
relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code, giving the
vendee a retro the right to demand redemption of the entire property.
There is no merit in this petition.
The right of repurchase may be exercised by a co-owner with aspect to his share alone. 5 While the
records show that the petitioner redeemed the property in its entirety, shouldering the expenses
therefor, that did not make him the owner of all of it. In other words, it did not put to end the existing
state of co-ownership.
Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement
from the remaining co-owners. 6 There is no doubt that redemption of property entails a necessary
expense. Under the Civil Code:
ART. 488. Each co-owner shall have a right to compel the other co-owners to
contribute to the expenses of preservation of the thing or right owned in common and
to the taxes. Any one of the latter may exempt himself from this obligation by
renouncing so much of his undivided interest as may be equivalent to his share of the
expenses and taxes. No such waiver shall be made if it is prejudicial to the coownership.
The result is that the property remains to be in a condition of co-ownership. While a vendee a retro,
under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the
redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership
over it. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the
property and consolidate title thereto in his name. 7But the provision does not give to the redeeming
co-owner the right to the entire property. It does not provide for a mode of terminating a coownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name
terminate the existing co-ownership. While his half-brothers and sisters are, as we said, liable to him
for reimbursement as and for their shares in redemption expenses, he cannot claim exclusive right to
the property owned in common. Registration of property is not a means of acquiring ownership. It
operates as a mere notice of existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the property on behalf of the private respondents.
The Civil Code states:
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an implied trust for the benefit of the person
from whom the property comes.
We agree with the respondent Court of Appeals that fraud attended the registration of the property.
The petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial
settlement he executed preliminary to the registration thereof betrays a clear effort on his part to
defraud his brothers and sisters and to exercise sole dominion over the property. The aforequoted
provision therefore applies.
It is the view of the respondent Court that the petitioner, in taking over the property, did so either on
behalf of his co-heirs, in which event, he had constituted himself a negotiorum gestor under Article
2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud, and must act as
trustee, the private respondents being the beneficiaries, under the Article 1456. The evidence, of
course, points to the second alternative the petitioner having asserted claims of exclusive ownership
over the property and having acted in fraud of his co-heirs. He cannot therefore be said to have
assume the mere management of the property abandoned by his co-heirs, the situation Article 2144
of the Code contemplates. In any case, as the respondent Court itself affirms, the result would be the
same whether it is one or the other. The petitioner would remain liable to the Private respondents, his
co-heirs.
This Court is not unaware of the well-established principle that prescription bars any demand on
property (owned in common) held by another (co-owner) following the required number of years. In
that event, the party in possession acquires title to the property and the state of co-ownership is
ended . 8 In the case at bar, the property was registered in 1955 by the petitioner, solely in his name,
while the claim of the private respondents was presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have
been preceded by repudiation (of the co-ownership). The act of repudiation, in turn is subject to
certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is
clearly made known to the other co-owners; (3) the evidence thereon is clear and conclusive, and (4)
he has been in possession through open, continuous, exclusive, and notorious possession of the
property for the period required by law. 9

The instant case shows that the petitioner had not complied with these requisites. We are not
convinced that he had repudiated the co-ownership; on the contrary, he had deliberately kept the
private respondents in the dark by feigning sole heirship over the estate under dispute. He cannot
therefore be said to have "made known" his efforts to deny the co-ownership. Moreover, one of the
private respondents, Emeteria Asejo, is occupying a portion of the land up to the present, yet, the
petitioner has not taken pains to eject her therefrom. As a matter of fact, he sought to recover
possession of that portion Emeteria is occupying only as a counterclaim, and only after the private
respondents had first sought judicial relief.

G.R. No. 82670 September 15, 1989

It is true that registration under the Torrens system is constructive notice of title, 10 but it has likewise
been our holding that the Torrens title does not furnish a shield for fraud. 11 It is therefore no
argument to say that the act of registration is equivalent to notice of repudiation, assuming there was
one, notwithstanding the long-standing rule that registration operates as a universal notice of title.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the
estate registered in 1955. While actions to enforce a constructive trust prescribes in ten
years, 12 reckoned from the date of the registration of the property, 13 we, as we said, are not
prepared to count the period from such a date in this case. We note the petitioner's sub rosa efforts to
get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his
unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza
with the consequence that he was able to secure title in his name also." 14 Accordingly, we hold that
the right of the private respondents commenced from the time they actually discovered the
petitioner's act of defraudation. 15 According to the respondent Court of Appeals, they "came to know
[of it] apparently only during the progress of the litigation." 16 Hence, prescription is not a bar.
Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a motion
to dismiss or in the answer otherwise it is deemed waived, 17 and here, the petitioner never raised that
defense. 18 There are recognized exceptions to this rule, but the petitioner has not shown why they
apply.

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL,"petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.
Roque A. Tamayo for petitioner.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which,
applying the doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV,
Quezon City by deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of
ladies garments, children's wear, men's apparel and linens for local and foreign buyers. Among its
foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time remitted certain
amounts of money to petitioner in payment for the items it had purchased. Sometime in August 1980,
FACETS instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A.
(hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank,
Sta. Cruz Branch, Manila (hereinafter referred to as PNB).

Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust
Corporation to effect the above- mentioned transfer through its facilities and to charge the amount to
the account of FNSB with private respondent. Although private respondent was able to send a telex to
PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where petitioner had an account, the
payment was not effected immediately because the payee designated in the telex was only "Wearing
Apparel." Upon query by PNB, private respondent sent PNB another telex dated August 27, 1980
stating that the payment was to be made to "Irene's Wearing Apparel." On August 28, 1980, petitioner
received the remittance of $10,000.00 through Demand Draft No. 225654 of the PNB.

THIRD DIVISION

Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to
petitioner, FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner
had already received the remittance, FACETS informed private respondent about the delay and at the
same time amended its instruction by asking it to effect the payment through the Philippine
Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB.

WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the
petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED,

Accordingly, private respondent, which was also unaware that petitioner had already received the
remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on
September 11, 1980, petitioner received a second $10,000.00 remittance.
Private respondent debited the account of FNSB for the second $10,000.00 remittance effected
through PCIB. However, when FNSB discovered that private respondent had made a duplication of the
remittance, it asked for a recredit of its account in the amount of $10,000.00. Private respondent
complied with the request.
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the
latter refused to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV,
Quezon City which was decided in favor of petitioner as defendant. The trial court ruled that Art. 2154
of the New Civil Code is not applicable to the case because the second remittance was made not by
mistake but by negligence and petitioner was not unjustly enriched by virtue thereof [Record, p. 234].
On appeal, the Court of Appeals held that Art. 2154 is applicable and reversed the RTC decision. The
dispositive portion of the Court of Appeals' decision reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and another
one entered in favor of plaintiff-appellant and against defendant-appellee Domelita
(sic) M. Andres, doing business under the name and style "Irene's Wearing Apparel" to
reimburse and/or return to plaintiff-appellant the amount of $10,000.00, its equivalent
in Philippine currency, with interests at the legal rate from the filing of the complaint
on May 12, 1982 until the whole amount is fully paid, plus twenty percent (20%) of
the amount due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent
has the right to recover the second $10,000.00 remittance it had delivered to petitioner. The
resolution of this issue would hinge on the applicability of Art. 2154 of the New Civil Code which
provides that:
Art. 2154. If something received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through
an error, has been unduly delivered, an obligation to restore it arises.

In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained
the nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable.
This legal provision, which determines the quasi-contract of solution indebiti, is one of
the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et
injuria fieri locupletiorem." And the Partidas declared: "Ninguno non deue
enriquecerse tortizeramente con dano de otro." Such axiom has grown through the
centuries in legislation, in the science of law and in court decisions. The lawmaker has
found it one of the helpful guides in framing statutes and codes. Thus, it is unfolded in
many articles scattered in the Spanish Civil Code. (See for example, articles, 360, 361,
464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This
time-honored aphorism has also been adopted by jurists in their study of the conflict
of rights. It has been accepted by the courts, which have not hesitated to apply it
when the exigencies of right and equity demanded its assertion. It is a part of that
affluent reservoir of justice upon which judicial discretion draws whenever the
statutory laws are inadequate because they do not speak or do so with a confused
voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was not under
obligation to do so; and, (2) that payment was made by reason of an essential mistake of fact" [City
of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance. However,
petitioner contends that the doctrine of solutio indebiti, does not apply because its requisites are
absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are credited to
petitioner's receivables from FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is
argued that the last $10,000.00 remittance being in payment of a pre-existing debt, petitioner was
not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other textile products, was with
FACETS. It was the latter and not private respondent which was indebted to petitioner. On the other
hand, the contract for the transmittal of dollars from the United States to petitioner was entered into
by private respondent with FNSB. Petitioner, although named as the payee was not privy to the
contract of remittance of dollars. Neither was private respondent a party to the contract of sale
between petitioner and FACETS. There being no contractual relation between them, petitioner has no

right to apply the second $10,000.00 remittance delivered by mistake by private respondent to the
outstanding account of FACETS.

Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring,
therefore, a showing that the findings complained of are totally devoid of support in
the record, or that they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not expected or required to
examine or contrast the oral and documentary evidence submitted by the parties"
[Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 9731.
[at pp. 144-145.]

Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance
was not made by mistake but was the result of negligence of its employees. In connection with this
the Court of Appeals made the following finding of facts:
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the
written interrogatories sent to the First National State Bank of New Jersey through the
Consulate General of the Philippines in New York, Adelaide C. Schachel, the
investigation and reconciliation clerk in the said bank testified that a request to remit a
payment for Facet Funwear Inc. was made in August, 1980. The total amount which
the First National State Bank of New Jersey actually requested the plaintiff-appellant
Manufacturers Hanover & Trust Corporation to remit to Irene's Wearing Apparel was
US $10,000.00. Only one remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is borne out by
the fact that both remittances have the same reference invoice number which is 263
80. (Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr.
Stanley Panasow").

Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the
wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate
cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision of law specifically
applicable to a case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148
SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank
of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98
Phil. 788 (1956)]. Hence, the Court in the case of De Garcia v. Court of Appeals, G.R. No. L-20264,
January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13
SCRA 486, held:
... The common law principle that where one of two innocent persons must suffer by a
fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a
case which is covered by an express provision of the new Civil Code, specifically Article
559. Between a common law principle and a statutory provision, the latter must
prevail in this jurisdiction. [at p. 135.]

Plaintiff-appellant made the second remittance on the wrong assumption that

defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo, pp.
26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which
petitioner would have this Court review. The Court holds that the finding by the Court of Appeals that
the second $10,000.00 remittance was made by mistake, being based on substantial evidence, is final
and conclusive. The rule regarding questions of fact being raised with this Court in a petition
for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante v. Tibe, G.R.
No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for
certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and
revising the errors of law imputed to it, its findings of fact being conclusive" [Chan v.
Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long
line of decisions]. This Court has emphatically declared that "it is not the function of
the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have been committed by the lower
court" [Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona
v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v.

Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies
in the case at bar, the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that
from the time the second $10,000.00 remittance was made, five hundred and ten days had elapsed
before private respondent demanded the return thereof. Needless to say, private respondent instituted
the complaint for recovery of the second $10,000.00 remittance well within the six years prescriptive
period for actions based upon a quasi-contract [Art. 1145 of the New Civil Code].
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.

EN BANC
G.R. No. L-17447

April 30, 1963

GONZALO
PUYAT
&
SONS,
INC., plaintiff-appelle,
vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila, defendantsappellants
Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal Manuel T. Reyes for defendantsappellants.
PAREDES, J.:
This is an appeal from the judgment of the CFI of Manila, the dispostive portion of which reads:
"xxx Of the payments made by the plaintiff, only that made on October 25, 1950 in the
amount of P1,250.00 has prescribed Payments made in 1951 and thereafter are still
recoverable since the extra-judicial demand made on October 30, 1956 was well within the
six-year prescriptive period of the New CivilCode.
In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiff,
ordering the defendants to refund the amount of P29,824.00, without interest. No costs.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1wph1.t
Defendants' counterclaim is hereby dismissed for not having been substantiated."
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail
DealerlsTaxes paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of 1956,
amounting to P33,785.00, against the City of Manila and its City Treasurer.The case was submitted on
the following stipulation of facts, to wit-"1. That the plaintiff is a corporation duly organized and existing according to the laws of the
Philippines, with offices at Manila; while defendant City Manila is a Municipal Corporation duly
organized in accordance with the laws of the Philippines, and defendant Marcelino Sarmiento is
the dulyqualified incumbent City Treasurer of Manila;

"3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance No. 3364,
defendant City Treasurer of Manilaassessed from plaintiff retail dealer's tax corresponding to
the quarters hereunder stated on the sales of furniture manufactured and sold by it at its
factory site, all of which assessments plaintiff paid without protest in the erroneous belief that
it was liable therefor, on the dates and in the amount enumerated herein below:

Period

Date Paid

O.R. No.

Amount
Assessed
and Paid.

First Quarter 1950

Jan. 25, 1950

436271X

P1,255.00

Second Quarter 1950

Apr. 25, 1950

215895X

1,250.00

Third Quarter 1950

Jul. 25, 1950

243321X

1,250.00

Fourth Quarter 1950

Oct. 25, 1950

271165X

1,250.00

(Follows
the
assessment
for
different
quarters
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..

in

First Quarter 1956

Jan. 25, 1956

823047X

1,250.00

Second Quarter 1956

Apr. 25, 1956

855949X

1,250.00

Third Quarter 1956

Jul. 25, 1956

880789X

1,250.00

TOTAL

P33,785.00
==========

"4. That plaintiff, being a manufacturer of various kinds of furniture, is exempt from the
payment of taxes imposed under the provisions of Sec. 1, Group II, of Ordinance No.
3364,which took effect on September 24, 1956, on the sale of the various kinds of furniture
manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act No. 409 (Revised
Charter of Manila), as restated in Section 1 of Ordinance No.3816.
"5. That, however, plaintiff, is liable for the payment of taxes prescribed in Section 1, Group II
or Ordinance No. 3364mas amended by Sec. 1, Group II of Ordinance No. 3816, which took
effect on September 24, 1956, on the sales of imported billiard balls, bowling balls and other
accessories at its displayroom. The taxes paid by the plaintiff on the sales of said article are as
follows:
xxx

"2. That plaintiff is engaged in the business of manufacturing and selling all kinds of furniture
at its factory at 190 Rodriguez-Arias, San Miguel, Manila, and has a display room located at
604-606 Rizal Avenue, Manila, wherein it displays the various kind of furniture manufactured
by it and sells some goods imported by it, such as billiard balls, bowling balls and other
accessories;

.............

1951,

xxx

xxx

"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila, a
formal request for refund of the retail dealer's taxes unduly paid by it as aforestated in
paragraph 3, hereof.
"7. That on July 24, 1958, the defendant City Treasurer of Maniladefinitely denied said request
for refund.

"8. Hence on August 21, 1958, plaintiff filed the present complaint.
"9. Based on the above stipulation of facts, the legal issues to be resolved by this Honorable
Court are: (1) the period of prescription applicable in matters of refund of municipal taxes
errenously paid by a taxpayer and (2) refund of taxes not paid under protest. x x x."
Said judgment was directly appealed to this Court on two dominant issues to wit: (1) Whether or not
the amounts paid by plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as amended by
Ordinance No. 3364of the City of Manila, without protest, are refundable;(2) Assuming arguendo, that
plaintiff-appellee is entitled to the refund of the retail taxes in question, whether or not the claim for
refund filed in October 1956, in so far as said claim refers to taxes paid from 1950 to 1952 has
already prescribed. .
Under the first issue, defendants-appellants contend tht the taxes in question were voluntarily paid by
appellee company and since, in this jurisdiction, in order that a legal basis arise for claim of refund of
taxes erroneously assessed, payment thereof must be made under protest, and this being a condition
sine qua non, and no protest having been made, -- verbally or in writing, therebyindicating that the
payment was voluntary, the action must fail. Cited in support of the above contention, are the cases of
Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v. Municipality of Calapan, 71 Phil. 438..
In refutation of the above stand of appellants, appellee avers tht the payments could not have been
voluntary.At most, they were paid "mistakenly and in good faith"and "without protest in the erroneous
belief that it was liable thereof." Voluntariness is incompatible with protest and mistake. It submits
that this is a simple case of "solutio indebiti"..
Appellants do not dispute the fact that appellee-companyis exempted from the payment of the tax in
question.This is manifest from the reply of appellant City Treasurer stating that sales of manufactured
products at the factory site are not taxable either under the Wholesalers Ordinance or under the
Retailers' Ordinance. With this admission, it would seem clear that the taxes collected from appellee
were paid, thru an error or mistake, which places said act of payment within the pale of the new Civil
Code provision on solutio indebiti. The appellant City of Manila, at the very start, notwithstanding the
Ordinance imposing the Retailer's Tax, had no right to demand payment thereof..
"If something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligationto retun it arises" (Art. 2154, NCC)..
Appelle categorically stated that the payment was not voluntarily made, (a fact found also by the
lower court),but on the erronoues belief, that they were due. Under this circumstance, the amount
paid, even without protest is recoverable. "If the payer was in doubt whether the debt was due, he
may recover if he proves that it was not due" (Art. 2156, NCC). Appellee had duly proved that taxes
were not lawfully due. There is, therefore, no doubt that the provisions of solutio indebtiti, the new
Civil Code, apply to the admitted facts of the case..
With all, appellant quoted Manresa as saying: "x x x De la misma opinion son el Sr. Sanchez Roman y
el Sr. Galcon, et cual afirma que si la paga se hizo por error de derecho, ni existe el cuasi-contrato ni
esta obligado a la restitucion el que cobro, aunque no se debiera lo que se pago" (Manresa, Tomo 12,
paginas 611-612). This opinion, however, has already lost its persuasiveness, in view of the provisions
of the Civil Code, recognizing "error de derecho" as a basis for the quasi-contract, of solutio indebiti. .

"Payment by reason of a mistake in the contruction or application of a doubtful or difficult question of

law may come within the scope of the preceding article" (Art. 21555)..
There is no gainsaying the fact that the payments made by appellee was due to a mistake in the
construction of a doubtful question of law. The reason underlying similar provisions, as applied to
illegal taxation, in the United States, is expressed in the case of Newport v. Ringo, 37 Ky. 635, 636; 10
S.W. 2, in the following manner:.
"It is too well settled in this state to need the citation of authority that if money be paid through a
clear mistake of law or fact, essentially affecting the rights of the parties, and which in law or
conscience was not payable, and should not be retained by the party receiving it, it may be recovered.
Both law and sound morality so dictate. Especially should this be the rule as to illegal taxation. The
taxpayer has no voice in the impositionof the burden. He has the right to presume that the taxing
power has been lawfully exercised. He should not be required to know more than those in authority
over him, nor should he suffer loss by complying with what he bona fide believe to be his duty as a
good citizen. Upon the contrary, he should be promoted to its ready performance by refunding to him
any legal exaction paid by him in ignorance of its illegality; and, certainly, in such a case, if be subject
to a penalty for nonpayment, his compliance under belief of its legality, and without awaitinga resort
to judicial proceedings should not be regrded in law as so far voluntary as to affect his right of
recovery.".
"Every person who through an act or performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal grounds, shall return
the same to him"(Art. 22, Civil Code). It would seems unedifying for the government, (here the City of
Manila), that knowing it has no right at all to collect or to receive money for alleged taxes paid by
mistake, it would be reluctant to return the same. No one should enrich itself unjustly at the expense
of another (Art. 2125, Civil Code)..
Admittedly, plaintiff-appellee paid the tax without protest.Equally admitted is the fact that section 76
of the Charter of Manila provides that "No court shall entertain any suit assailing the validity of tax
assessed under this article until the taxpayer shall have paid, under protest the taxes assessed against
him, xx". It should be noted, however, that the article referred to in said section is Article XXI, entitled
Department of Assessment and the sections thereunder manifestly show that said article and its
sections relate to asseessment, collection and recovery of real estate taxes only. Said section 76,
therefor, is not applicable to the case at bar, which relates to the recover of retail dealer taxes..
In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question similar to the case at
bar, it was held that the requiredment of protest refers only to the payment of taxes which are directly
imposed by the charter itself, that is, real estate taxes, which view was sustained by judicial and
administrative precedents, one of which is the case of Medina, et al., v. City of Baguio, G.R. No. L4269, Aug. 29, 1952. In other words, protest is not necessary for the recovery of retail dealer's taxes,
like the present, because they are not directly imposed by the charter. In the Medina case, the Charter
of Baguio (Chap. 61, Revised Adm. Code), provides that "no court shall entertain any suit assailing the
validity of a tax assessed unde this charter until the tax-payer shall have paid, under protest, the
taxes assessed against him (sec.25474[b], Rev. Adm. Code), a proviso similar to section 76 of the
Manila Charter. The refund of specific taxes paid under a void ordinance was ordered, although it did
not appear that payment thereof was made under protest..

In a recent case, We said: "The appellants argue that the sum the refund of which is sought by the
appellee, was not paid under protest and hence is not refundable. Again, the trial court correctly held
that being unauthorized, it is not a tax assessed under the Charter of the Appellant City of Davao and
for that reason, no protest is necessary for a claim or demand for its refund" (Citing the Medina case,
supra; East Asiatic Co., Ltd. v. City of Davao, G.R. No. L-16253, Aug. 21, 1962). Lastly, being a case of
solutio indebiti, protest is not required as a condition sine qua non for its application..
The next issue in discussion is that of prescription. Appellants maintain that article 1146 (NCC), which
provides for a period of four (4) years (upon injury to the rights of the plaintiff), apply to the case. On
the other hand, appellee contends that provisions of Act 190 (Code of Civ. Procedure) should apply,
insofar as payments made before the effectivity of the New Civil Code on August 30, 1950, the period
of which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145
(NCC), for payments made after said effectivity, providing for a period of six (6) years (upon quasicontracts like solutio indebiti). Even if the provisionsof Act No. 190 should apply to those payments
made before the effectivity of the new Civil Code, because "prescription already runnig before the
effectivity of this Code shall be governed by laws previously in force x x x" (art. 1116, NCC), for
payments made after said effectivity,providing for a period of six (6) years (upon quasi-contracts like
solutio indebiti). Even if the provisions of Act No. 190should apply to those payments made before the
effectivity of the new Civil Code, because "prescription already running before the effectivity of of this
Code shall be govern by laws previously in force xxx " (Art. 1116, NCC), Still payments made before
August 30, 1950 are no longer recoverable in view of the second paragraph of said article (1116),
which provides:"but if since the time this Code took effect the entire period herein required for
prescription should elapse the present Code shall be applicable even though by the former laws a
longer period might be required". Anent the payments made after August 30, 1950, it is abvious that
the action has prescribed with respect to those made before October 30, 1950 only, considering the
fact that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x"
(Art. 1155, NCC), and the written demand in the case at bar was made on October 30, 1956
(Stipulation of Facts).MODIFIED in the sense that only payments made on or after October 30, 1950
should be refunded, the decision appealed from is affirmed, in all other respects. No costs. .
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion,Dizon, Regala and Makalintal, JJ., concur.
Padilla,
Reyes,
J.B.L.,
and
Barrera,
JJ., too
no
part.
Decision affirmed.

FIRST DIVISION
G.R. Nos. 198729-30

DECISION
SERENO, CJ:

The Facts
Petitioner is engaged, among others, in the operation, maintenance, and management of the Kalayaan
II pumped-storage hydroelectric power plant, the new Caliraya Spillway, Caliraya, Botocan; and the
Kalayaan I hydroelectric power plants and their related facilities located in the Province of Laguna. 6
On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal
Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC) of
1997, as amended. The application was duly approved by the BIR. Thus, petitioner s sale of electr
icity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the benefit of
effectively zero-rated value added tax (VAT).7
Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged
unutilized input taxes on its purchase of capital goods and alleged unutilized input taxes on its local
purchases and/or importation of goods and services, other than capital goods, pursuant to Sections
112(A) and (B) of the NIRC of 1997, as amended, with BIR Revenue District Office (RDO) No. 55 of
Laguna, as follows:8
Period Covered

Date Of Filing

1st quarter of 2005

30-Jun-05

2nd quarter of 2005

15-Sep-05

3rd quarter of 2005

28-Oct-05

Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner filed a Petition for Review
with the CTA on 18 April 2007.

January 15, 2014

CBK
POWER
COMPANY
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

This is a Petition for Review on Certiorari 1 under Rule 45 of the 1997 Rules of Civil Procedure filed by
CBK Power Company Limited (petitioner). The Petition assails the Decision 2 dated 27 June 2011 and
Resolution3 dated 16 September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in C.T.A. EB
Nos. 658 and 659. The assailed Decision and Resolution reversed and set aside the Decision 4 dated 3
March 2010 and Resolution5 dated 6 July 2010 rendered by the CTA Special Second Division in C.T.A.
Case No. 7621, which partly granted the claim of petitioner for the issuance of a tax credit certificate
representing the latter's alleged unutilized input taxes on local purchases of goods and services
attributable to effectively zero-rated sales to National Power Corporation (NPC) for the second and
third quarters of 2005.

LIMITED, Petitioner,

THE CTA SPECIAL SECOND DIVISION RULING

After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010.
Applying Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant), 9 the court
a quo ruled that petitioner had until the following dates within which to file both administrative and
judicial claims:

Taxable Quarter
2005

Close of the quarter

Last
File
Refund

Day
Claim

1st quarter

31-Mar-05

31-Mar-07

2nd quarter

30-Jun-05

30-Jun-07

3rd quarter

30-Sep-05

30-Sep-07

to
for

Accordingly, petitioner timely filed its administrative claims for the three quarters of 2005. However,
considering that the judicial claim was filed on 18 April 2007, the CTA Division denied the claim for the
first quarter of 2005 for having been filed out of time.
After an evaluation of petitioners claim for the second and third quarters of 2005, the court a quo
partly granted the claim and ordered the issuance of a tax credit certificate in favor of petitioner in the
reduced amount ofP27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration, which were both denied by the
CTA Division.
THE CTA EN BANC RULING
On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi),10 the CTA En Banc ruled that petitioners judicial claim for the first, second, and third quarters
of 2005 were belatedly filed.

That in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and Section
108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zerorated sale and also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated proportionately on the basis of the volume of
sales.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
Petitioners sales to NPC are effectively zero-rated

Hence, this Petition.ISSUE

As aptly ruled by the CTA Special Second Division, petitioners sales to NPC are effectively subject to
zero percent (0%) VAT. The NPC is an entity with a special charter, which categorically exempts it from
the payment of any tax, whether direct or indirect, including VAT. Thus, services rendered to NPC by a
VAT-registered entity are effectively zero-rated. In fact, the BIR itself approved the application for
zero-rating on 29 December 2004, filed by petitioner for its sales to NPC covering January to October
2005.12 As a consequence, petitioner claims for the refund of the alleged excess input tax attributable
to its effectively zero-rated sales to NPC.

Petitioners assigned errors boil down to the principal issue of the applicable prescriptive period on its
claim for refund of unutilized input VAT for the first to third quarters of 2005. 11

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal

Revenue,13 this Court ruled:

THE COURTS RULING

Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the
input taxes that his suppliers passed on to him, no payment is required of him. It is when his output
taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the
output taxes, however, the excess payment shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from
the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the
taxpayer.

The CTA Special Second Division Decision and Resolution were reversed and set aside, and the Petition
for Review filed in CTA Case No. 7621 was dismissed. Petitioners Motion for Reconsideration was
likewise denied for lack of merit.

The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: Provided, however,

The crux of the controversy arose from the proper application of the prescriptive periods set forth in
Section 112 of the NIRC of 1997, as amended, and the interpretation of the applicable jurisprudence.

Although the ponente in this case expressed a different view on the mandatory application of the
120+30 day period as prescribed in Section 112, with the finality of the Courts pronouncement on the
consolidated tax cases Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito
Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue14 (hereby collectively referred as San Roque), we are constrained to
apply the dispositions therein to the facts herein which are similar.
Administrative Claim
Section 112(A) provides that after the close of the taxable quarter when the sales were made, there is
a two-year prescriptive period within which a VAT-registered person whose sales are zero-rated or
effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input
tax.
Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess
input taxes over the output taxes they had paid in relation to their sales. For the refund or credit of
excess or unutilized input tax, Section 112 is the governing law. Given the distinctive nature of
creditable input tax, the law under Section 112 (A) provides for a different reckoning point for the
two-year prescriptive period, specifically for the refund or credit of that tax only.

3rd quarter 2005

30-Sep-05

30-Sep-07

28-Oct-05

Judicial Claim
Section 112(D) further provides that the CIR has to decide on an administrative claim within one
hundred twenty (120) days from the date of submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is presumed
that in order to discharge its burden, petitioner had attached complete supporting documents
necessary to prove its entitlement to a refund in its application, absent any evidence to the contrary.
Thereafter, the taxpayer affected by the CIRs decision or inaction may appeal to the CTA within 30
days from the receipt of the decision or from the expiration of the 120-day period within which the
claim has not been acted upon.
Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period,
compliance with both periods is jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.

We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed
in 2005; thus, it should not retroactively be applied to the instant case.

Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of
Internal Revenue,17 this Court has ruled thus:

However, the fact remains that Section 112 is the controlling provision for the refund or credit of input
tax during the time that petitioner filed its claim with which they ought to comply. It must be
emphasized that the Court merely clarified in Mirant that Sections 204 and 229, which prescribed a
different starting point for the two-year prescriptive limit for filing a claim for a refund or credit of
excess input tax, were not applicable. Input tax is neither an erroneously paid nor an illegally collected
internal revenue tax.15

Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque
recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers. BIR
Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the
120-day period before it could seek judicial relief with the CTA by way of Petition for Review." This
Court discussed BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:

Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zerorated, a claim for the refund or credit of creditable input tax that is due or paid, and that is
attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close
of the taxable quarter when such sales were made. The reckoning frame would always be the end of
the quarter when the pertinent sale or transactions were made, regardless of when the input VAT was
paid.16
Pursuant to Section 112(A), petitioners administrative claims were filed well within the two-year
period from the close of the taxable quarter when the effectively zero-rated sales were made, to wit:

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly

on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that
the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law.
The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated,
being made to return the tax refund or credit they received or could have received under Atlas prior to
its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative rule issued by the
Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. x x x.
xxxx

Period Covered

Close of
Taxable
Quarter

the

Last day
Claim

to

File

Administrative

Date of Filing

1st quarter 2005

31-Mar-05

31-Mar-07

30-Jun-05

2nd quarter 2005

30-Jun-05

30-Jun-07

15-Sep-05

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to
all taxpayers or a specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a
general interpretative rule because it was a response to a query made, not by a particular taxpayer,
but by a government agency asked with processing tax refunds and credits, that is, the One Stop
Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government
agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while
this government agency mentions in its query to the Commissioner the administrative claim of Lazi

Bay Resources Development, Inc., the agency was in fact asking the Commissioner what to do in
cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for
the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.1wphi1 Thus, all taxpayers can rely
on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional. (Emphasis supplied)
In applying the foregoing to the instant case, we consider the following pertinent dates:
1wphi1
Period Covered

Administrative
Claim Filed

Expiration
120-days

of Last day to file

Judicial Claim

1st quarter 2005

30-Jun-05

28-Oct-05

27-Nov-05

2nd quarter 2005

15-Sep-05

13-Jan-06

13-Feb-06

3rd quarter 2005

28-Oct-05

26-Feb-06

28-Mar-06

Judicial
Filed

Claim

18-Apr-07

It must be emphasized that this is not a case of premature filing of a judicial claim. Although
petitioner did not file its judicial claim with the CTA prior to the expiration of the 120-day waiting
period, it failed to observe the 30-day prescriptive period to appeal to the CTA counted from the lapse
of the 120-day period.
Petitioner is similarly situated as Philex in the same case, San Roque, 18 in which this Court ruled:
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex did
not file any petition with the CTA within the 120-day period. Philex did not also file any petition with
the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim long
after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period. In
any event, whether governed by jurisprudence before, during, or after the Atlas case, Philexs judicial
claim will have to be rejected because of late filing. Whether the two-year prescriptive period is
counted from the date of payment of the output VAT following the Atlas doctrine, or from the close of
the taxable quarter when the sales attributable to the input VAT were made following the Mirant and
Aichi doctrines, Philexs judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philexs claim during the 120-day period is, by express provision of law, "deemed a
denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philexs failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences. (Emphases in the original)

Likewise, while petitioner filed its administrative and judicial claims during the period of applicability of
BIR Ruling No. DA-489-03, it cannot claim the benefit of the exception period as it did not file its
judicial claim prematurely, but did so long after the lapse of the 30-day period following the expiration
of the 120-day period. Again, BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim,
which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative
claim,19 but not its late filing.
As this Court enunciated in San Roque , petitioner cannot rely on Atlas either, since the latter case was
promulgated only on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year period
from the date of filing of the return and payment of the tax, does not interpret expressly or
impliedly the 120+30 day periods.20 Simply stated, Atlas referred only to the reckoning of the
prescriptive period for filing an administrative claim.
For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period, petitioner
lost its right to claim a refund or credit of its alleged excess input VAT.
With regard to petitioners argument that Aichi should not be applied retroactively, we reiterate that
even without that ruling, the law is explicit on the mandatory and jurisdictional nature of the 120+30
day period.
Also devoid of merit is the applicability of the principle of solutio indebiti to the present case.
According to this principle, if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. In that situation, a creditor-debtor
relationship is created under a quasi-contract, whereby the payor becomes the creditor who then has
the right to demand the return of payment made by mistake, and the person who has no right to
receive the payment becomes obligated to return it. 21 The quasi-contract of solutio indebiti is based on
the ancient principle that no one shall enrich oneself unjustly at the expense of another.22
There is solutio indebiti when:
(1) Payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and
(2) Payment is made through mistake, and not through liberality or some other cause. 23
Though the principle of solutio indebiti may be applicable to some instances of claims for a refund, the
elements thereof are wanting in this case.
First, there exists a binding relation between petitioner and the CIR, the former being a taxpayer
obligated to pay VAT.
Second, the payment of input tax was not made through mistake, since petitioner was legally
obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely
based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the
amount paid was correct and proper.24

Finally, equity, which has been aptly described as "a justice outside legality," is applied only in the
absence of, and never against, statutory law or judicial rules of procedure. 25 Section 112 is a positive
rule that should preempt and prevail over all abstract arguments based only on equity. Well-settled is
the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.26 The burden is on the taxpayer to show strict compliance with the conditions for the grant of
the tax refund or credit.27
WHEREFORE, premises considered, the instant Petition is DENIED.

feet slipped from under him and he fell violently on the platform. His body at once rolled from the
platform and was drawn under the moving car, where his right arm was badly crushed and lacerated.
It appears that after the plaintiff alighted from the train the car moved forward possibly six meters
before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted
dimly by a single light located some distance away, objects on the platform where the accident
occurred were difficult to discern especially to a person emerging from a lighted car.

SO ORDERED.
The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is
found in the fact that it was the customary season for harvesting these melons and a large lot had
been brought to the station for the shipment to the market. They were contained in numerous sacks
which has been piled on the platform in a row one upon another. The testimony shows that this row of
sacks was so placed of melons and the edge of platform; and it is clear that the fall of the plaintiff was
due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the
platform. His statement that he failed to see these objects in the darkness is readily to be credited.

EN BANC
G.R. No. L-12191

October 14, 1918

JOSE
vs.
MANILA RAILROAD CO., defendant-appellee.
Ramon
Sotelo
Kincaid & Hartigan for appellee.

CANGCO, plaintiff-appellant,

for

appellant.

FISHER, J.:
At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the
employment of Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived
in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the defendant
railroad company; and in coming daily by train to the company's office in the city of Manila where he
worked, he used a pass, supplied by the company, which entitled him to ride upon the company's
trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff arose from his
seat in the second class-car where he was riding and, making, his exit through the door, took his
position upon the steps of the coach, seizing the upright guardrail with his right hand for support.
On the side of the train where passengers alight at the San Mateo station there is a cement platform
which begins to rise with a moderate gradient some distance away from the company's office and
extends along in front of said office for a distance sufficient to cover the length of several coaches. As
the train slowed down another passenger, named Emilio Zuiga, also an employee of the railroad
company, got off the same car, alighting safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off
also, but one or both of his feet came in contact with a sack of watermelons with the result that his

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the
injuries which he had received were very serious. He was therefore brought at once to a certain
hospital in the city of Manila where an examination was made and his arm was amputated. The result
of this operation was unsatisfactory, and the plaintiff was then carried to another hospital where a
second operation was performed and the member was again amputated higher up near the shoulder.
It appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and
surgical fees and for other expenses in connection with the process of his curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila
to recover damages of the defendant company, founding his action upon the negligence of the
servants and employees of the defendant in placing the sacks of melons upon the platform and leaving
them so placed as to be a menace to the security of passenger alighting from the company's trains. At
the hearing in the Court of First Instance, his Honor, the trial judge, found the facts substantially as
above stated, and drew therefrom his conclusion to the effect that, although negligence was
attributable to the defendant by reason of the fact that the sacks of melons were so placed as to
obstruct passengers passing to and from the cars, nevertheless, the plaintiff himself had failed to use
due caution in alighting from the coach and was therefore precluded form recovering. Judgment was
accordingly entered in favor of the defendant company, and the plaintiff appealed.
It can not be doubted that the employees of the railroad company were guilty of negligence in piling
these sacks on the platform in the manner above stated; that their presence caused the plaintiff to fall
as he alighted from the train; and that they therefore constituted an effective legal cause of the
injuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the
damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. In
resolving this problem it is necessary that each of these conceptions of liability, to-wit, the primary
responsibility of the defendant company and the contributory negligence of the plaintiff should be
separately examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all,
from the breach of that contract by reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate, differing essentially, in legal viewpoint
from that presumptive responsibility for the negligence of its servants, imposed by article 1903 of the
Civil Code, which can be rebutted by proof of the exercise of due care in their selection and
supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only
to extra-contractual obligations or to use the technical form of expression, that article relates only
to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly
points out this distinction, which was also recognized by this Court in its decision in the case of
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa
clearly points out the difference between "culpa, substantive and independent, which of itself
constitutes the source of an obligation between persons not formerly connected by any legal tie"
and culpa considered as an accident in the performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition
that article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of
a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one another.
But where relations already formed give rise to duties, whether springing from contract or
quasi-contract, then breaches of those duties are subject to article 1101, 1103, and 1104 of
the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain
cases imposed upon employers with respect to damages occasioned by the negligence of their
employees to persons to whom they are not bound by contract, is not based, as in the English
Common Law, upon the principle ofrespondeat superior if it were, the master would be liable in
every case and unconditionally but upon the principle announced in article 1902 of the Civil Code,
which imposes upon all persons who by their fault or negligence, do injury to another, the obligation of
making good the damage caused. One who places a powerful automobile in the hands of a servant
whom he knows to be ignorant of the method of managing such a vehicle, is himself guilty of an act of
negligence which makes him liable for all the consequences of his imprudence. The obligation to make
good the damage arises at the very instant that the unskillful servant, while acting within the scope of
his employment causes the injury. The liability of the master is personal and direct. But, if the master
has not been guilty of any negligence whatever in the selection and direction of the servant, he is not
liable for the acts of the latter, whatever done within the scope of his employment or not, if the
damage done by the servant does not amount to a breach of the contract between the master and the
person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant
relieves the master from liability for the latter's acts on the contrary, that proof shows that the
responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extracontractual culpa is always based upon a voluntary act or omission which, without willful intent, but by
mere negligence or inattention, has caused damage to another. A master who exercises all possible
care in the selection of his servant, taking into consideration the qualifications they should possess for
the discharge of the duties which it is his purpose to confide to them, and directs them with equal
diligence, thereby performs his duty to third persons to whom he is bound by no contractual ties, and
he incurs no liability whatever if, by reason of the negligence of his servants, even within the scope of
their employment, such third person suffer damage. True it is that under article 1903 of the Civil Code
the law creates a presumption that he has been negligent in the selection or direction of his servant,
but the presumption is rebuttable and yield to proof of due care and diligence in this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico Code,
has held that these articles are applicable to cases of extra-contractual culpa exclusively.
(Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua
and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-contractual
liability of the defendant to respond for the damage caused by the carelessness of his employee while
acting within the scope of his employment. The Court, after citing the last paragraph of article 1903 of
the Civil Code, said:
From this article two things are apparent: (1) That when an injury is caused by the negligence
of a servant or employee there instantly arises a presumption of law that there was negligence
on the part of the master or employer either in selection of the servant or employee, or in
supervision over him after the selection, or both; and (2) that that presumption is juris
tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that
if the employer shows to the satisfaction of the court that in selection and supervision he has
exercised the care and diligence of a good father of a family, the presumption is overcome and
he is relieved from liability.
This theory bases the responsibility of the master ultimately on his own negligence and not on
that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of
course, in striking contrast to the American doctrine that, in relations with strangers, the
negligence of the servant in conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based
upon negligence, it is necessary that there shall have been some fault attributable to the defendant
personally, and that the last paragraph of article 1903 merely establishes a rebuttable presumption, is
in complete accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the
liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special
relations of authority or superiority existing between the person called upon to repair the damage and
the one who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their
servants or agents, when such acts or omissions cause damages which amount to the breach of a
contact, is not based upon a mere presumption of the master's negligence in their selection or control,
and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his
liability for the breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual
obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of each
member of society constitute the measure of the corresponding legal duties, mainly negative in
character, which the existence of those rights imposes upon all other members of society. The breach
of these general duties whether due to willful intent or to mere inattention, if productive of injury, give
rise to an obligation to indemnify the injured party. The fundamental distinction between obligations of
this character and those which arise from contract, rests upon the fact that in cases of non-contractual
obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris,
whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty
assumed by the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect and our Legislature has so elected whom such an obligation
is imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend that liability,
without regard to the lack of moral culpability, so as to include responsibility for the negligence of
those person who acts or mission are imputable, by a legal fiction, to others who are in a position to
exercise an absolute or limited control over them. The legislature which adopted our Civil Code has
elected to limit extra-contractual liability with certain well-defined exceptions to cases in which
moral culpability can be directly imputed to the persons to be charged. This moral responsibility may
consist in having failed to exercise due care in the selection and control of one's agents or servants, or
in the control of persons who, by reason of their status, occupy a position of dependency with respect
to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the obligation
upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests
upon plaintiff to prove the negligence if he does not his action fails. But when the facts averred
show a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff
has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his pleadings
whether the breach of the contract is due to willful fault or to negligence on the part of the defendant,
or of his servants or agents. Proof of the contract and of its nonperformance is sufficient prima facie to
warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor
should assume the burden of proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which presupposes the existence of a

contractual obligation, if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach
was due to the negligent conduct of defendant or of his servants, even though such be in fact the
actual cause of the breach, it is obvious that proof on the part of defendant that the negligence or
omission of his servants or agents caused the breach of the contract would not constitute a defense to
the action. If the negligence of servants or agents could be invoked as a means of discharging the
liability arising from contract, the anomalous result would be that person acting through the medium
of agents or servants in the performance of their contracts, would be in a better position than those
acting in person. If one delivers a valuable watch to watchmaker who contract to repair it, and the
bailee, by a personal negligent act causes its destruction, he is unquestionably liable. Would it be
logical to free him from his liability for the breach of his contract, which involves the duty to exercise
due care in the preservation of the watch, if he shows that it was his servant whose negligence caused
the injury? If such a theory could be accepted, juridical persons would enjoy practically complete
immunity from damages arising from the breach of their contracts if caused by negligent acts as such
juridical persons can of necessity only act through agents or servants, and it would no doubt be true in
most instances that reasonable care had been taken in selection and direction of such servants. If one
delivers securities to a banking corporation as collateral, and they are lost by reason of the negligence
of some clerk employed by the bank, would it be just and reasonable to permit the bank to relieve
itself of liability for the breach of its contract to return the collateral upon the payment of the debt by
proving that due care had been exercised in the selection and direction of the clerk?
This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a
mere incident to the performance of a contract has frequently been recognized by the supreme court
of Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In the
decisions of November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that
defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense. The
Spanish Supreme Court rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of damages
caused by the defendant's failure to carry out the undertakings imposed by the contracts . . . .
A brief review of the earlier decision of this court involving the liability of employers for damage done
by the negligent acts of their servants will show that in no case has the court ever decided that the
negligence of the defendant's servants has been held to constitute a defense to an action for damages
for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was
not liable for the damages caused by the negligence of his driver. In that case the court commented
on the fact that no evidence had been adduced in the trial court that the defendant had been negligent
in the employment of the driver, or that he had any knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff
sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed
to get adrift by the negligence of defendant's servants in the course of the performance of a contract
of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant
grew out of a contract made between it and the plaintiff . . . we do not think that the provisions of
articles 1902 and 1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for the personal injuries caused by the negligence of defendant's chauffeur while driving
defendant's automobile in which defendant was riding at the time. The court found that the damages
were caused by the negligence of the driver of the automobile, but held that the master was not liable,
although he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. .
. . The act complained of must be continued in the presence of the owner for such length of
time that the owner by his acquiescence, makes the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it
is true that the court rested its conclusion as to the liability of the defendant upon article 1903,
although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to
him arising out of the contract of transportation. The express ground of the decision in this case was
that article 1903, in dealing with the liability of a master for the negligent acts of his servants "makes
the distinction between private individuals and public enterprise;" that as to the latter the law creates
a rebuttable presumption of negligence in the selection or direction of servants; and that in the
particular case the presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though
founded in tort rather than as based upon the breach of the contract of carriage, and an examination
of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this
theory. Viewed from the standpoint of the defendant the practical result must have been the same in
any event. The proof disclosed beyond doubt that the defendant's servant was grossly negligent and
that his negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared that
defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of
the servant. Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of
the duty were to be regarded as constituting culpa aquiliana or culpa contractual. As Manresa points
out (vol. 8, pp. 29 and 69) whether negligence occurs an incident in the course of the performance of
a contractual undertaking or its itself the source of an extra-contractual undertaking obligation, its
essential characteristics are identical. There is always an act or omission productive of damage due to
carelessness or inattention on the part of the defendant. Consequently, when the court holds that a
defendant is liable in damages for having failed to exercise due care, either directly, or in failing to
exercise proper care in the selection and direction of his servants, the practical result is identical in
either case. Therefore, it follows that it is not to be inferred, because the court held in the Yamada
case that defendant was liable for the damages negligently caused by its servants to a person to

whom it was bound by contract, and made reference to the fact that the defendant was negligent in
the selection and control of its servants, that in such a case the court would have held that it would
have been a good defense to the action, if presented squarely upon the theory of the breach of the
contract, for defendant to have proved that it did in fact exercise care in the selection and control of
the servant.
The true explanation of such cases is to be found by directing the attention to the relative spheres of
contractual and extra-contractual obligations. The field of non- contractual obligation is much more
broader than that of contractual obligations, comprising, as it does, the whole extent of juridical
human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that
a person is bound to another by contract does not relieve him from extra-contractual liability to such
person. When such a contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes the source of an extra-contractual obligation had no
contract existed between the parties.
The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in
safety and to provide safe means of entering and leaving its trains (civil code, article 1258). That duty,
being contractual, was direct and immediate, and its non-performance could not be excused by proof
that the fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that even granting that the negligent conduct
of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to
maintain safe means of approaching and leaving its trains, the direct and proximate cause of the
injury suffered by plaintiff was his own contributory negligence in failing to wait until the train had
come to a complete stop before alighting. Under the doctrine of comparative negligence announced in
the Rakes case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposed
upon defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages
should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of
negligence.
It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the
particular injury suffered by him could not have occurred. Defendant contends, and cites many
authorities in support of the contention, that it is negligence per se for a passenger to alight from a
moving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the
opinion that this proposition is too badly stated and is at variance with the experience of every-day
life. In this particular instance, that the train was barely moving when plaintiff alighted is shown
conclusively by the fact that it came to stop within six meters from the place where he stepped from
it. Thousands of person alight from trains under these conditions every day of the year, and sustain no
injury where the company has kept its platform free from dangerous obstructions. There is no reason
to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been
for defendant's negligent failure to perform its duty to provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's
work on Negligence (vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence in
attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to
be considered whether an ordinarily prudent person, of the age, sex and condition of the
passenger, would have acted as the passenger acted under the circumstances disclosed by the
evidence. This care has been defined to be, not the care which may or should be used by the
prudent man generally, but the care which a man of ordinary prudence would use under
similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec.
3010.)
Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep.,
809), we may say that the test is this; Was there anything in the circumstances surrounding the
plaintiff at the time he alighted from the train which would have admonished a person of average
prudence that to get off the train under the conditions then existing was dangerous? If so, the plaintiff
should have desisted from alighting; and his failure so to desist was contributory negligence. 1awph!
l.net
As the case now before us presents itself, the only fact from which a conclusion can be drawn to the
effect that plaintiff was guilty of contributory negligence is that he stepped off the car without being
able to discern clearly the condition of the platform and while the train was yet slowly moving. In
considering the situation thus presented, it should not be overlooked that the plaintiff was, as we find,
ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the
platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford to
its passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the
absence of some circumstance to warn him to the contrary, that the platform was clear. The place, as
we have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the part of
the defendant in the performance of a duty owing by it to the plaintiff; for if it were by any possibility
concede that it had right to pile these sacks in the path of alighting passengers, the placing of them
adequately so that their presence would be revealed.
As pertinent to the question of contributory negligence on the part of the plaintiff in this case the
following circumstances are to be noted: The company's platform was constructed upon a level higher
than that of the roadbed and the surrounding ground. The distance from the steps of the car to the
spot where the alighting passenger would place his feet on the platform was thus reduced, thereby
decreasing the risk incident to stepping off. The nature of the platform, constructed as it was of
cement material, also assured to the passenger a stable and even surface on which to alight.
Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no
means so risky for him to get off while the train was yet moving as the same act would have been in
an aged or feeble person. In determining the question of contributory negligence in performing such
act that is to say, whether the passenger acted prudently or recklessly the age, sex, and physical
condition of the passenger are circumstances necessarily affecting the safety of the passenger, and
should be considered. Women, it has been observed, as a general rule are less capable than men of
alighting with safety under such conditions, as the nature of their wearing apparel obstructs the free
movement of the limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as
it was his daily custom to get on and of the train at this station. There could, therefore, be no

uncertainty in his mind with regard either to the length of the step which he was required to take or
the character of the platform where he was alighting. Our conclusion is that the conduct of the plaintiff
in undertaking to alight while the train was yet slightly under way was not characterized by
imprudence and that therefore he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a
copyist clerk, and that the injuries he has suffered have permanently disabled him from continuing
that employment. Defendant has not shown that any other gainful occupation is open to plaintiff. His
expectancy of life, according to the standard mortality tables, is approximately thirty-three years. We
are of the opinion that a fair compensation for the damage suffered by him for his permanent
disability is the sum of P2,500, and that he is also entitled to recover of defendant the additional sum
of P790.25 for medical attention, hospital services, and other incidental expenditures connected with
the treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of
P3,290.25, and for the costs of both instances. So ordered.
Arellano, C.J., Torres, Street and Avancea, JJ., concur.
EN BANC
G.R. No. 34840

September 23, 1931

NARCISO
GUTIERREZ, plaintiff-appellee,
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.
L.D.
Lockwood
San
Agustin
Ramon Diokno for appellee.

for
and

appellants
Roxas

Velasco
for

and
other

Cortez.
appellants.

MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of Manila against the five
defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a result of
an automobile accident. On judgment being rendered as prayed for by the plaintiff, both sets of
defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las
Pias, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was owned by
Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age,

and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the
collision, the father was not in the car, but the mother, together will several other members of the
Gutierrez family, seven in all, were accommodated therein. A passenger in the autobus, by the name
of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus
and the automobile resulted in Narciso Gutierrez suffering a fracture right leg which required medical
attendance for a considerable period of time, and which even at the date of the trial appears not to
have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The difference between
the parties is that, while the plaintiff blames both sets of defendants, the owner of the passenger truck
blames the automobile, and the owner of the automobile, in turn, blames the truck. We have given
close attention to these highly debatable points, and having done so, a majority of the court are of the
opinion that the findings of the trial judge on all controversial questions of fact find sufficient support
in the record, and so should be maintained. With this general statement set down, we turn to consider
the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be
explained that the youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive
rate of speed, and that, on approaching the bridge and the truck, he lost his head and so contributed
by his negligence to the accident. The guaranty given by the father at the time the son was granted a
license to operate motor vehicles made the father responsible for the acts of his son. Based on these
facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the minor
or the mother, would be liable for the damages caused by the minor.

The defendants Velasco and Cortez further contend that there existed contributory negligence on the
part of the plaintiff, consisting principally of his keeping his foot outside the truck, which occasioned
his injury. In this connection, it is sufficient to state that, aside from the fact that the defense of
contributory negligence was not pleaded, the evidence bearing out this theory of the case is
contradictory in the extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award. The appellee suggests that the
amount could justly be raised to P16,517, but naturally is not serious in asking for this sum, since no
appeal was taken by him from the judgment. The other parties unite in challenging the award of
P10,000, as excessive. All facts considered, including actual expenditures and damages for the injury
to the leg of the plaintiff, which may cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum for the plaintiff of P5,000 would be fair
and reasonable. The difficulty in approximating the damages by monetary compensation is well
elucidated by the divergence of opinion among the members of the court, three of whom have inclined
to the view that P3,000 would be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo Velasco,
and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both instances.
Avancea, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.
SECOND DIVISION

We are dealing with the civil law liability of parties for obligations which arise from fault or negligence.
At the same time, we believe that, as has been done in other cases, we can take cognizance of the
common law rule on the same subject. In the United States, it is uniformly held that the head of a
house, the owner of an automobile, who maintains it for the general use of his family is liable for its
negligent operation by one of his children, whom he designates or permits to run it, where the car is
occupied and being used at the time of the injury for the pleasure of other members of the owner's
family than the child driving it. The theory of the law is that the running of the machine by a child to
carry other members of the family is within the scope of the owner's business, so that he is liable for
the negligence of the child because of the relationship of master and servant. (Huddy On Automobiles,
6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner
of the truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract
which, we think, has been sufficiently demonstrated by the allegations of the complaint, not
controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court
concerning the position of the truck on the bridge, the speed in operating the machine, and the lack of
care employed by the chauffeur. While these facts are not as clearly evidenced as are those which
convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the trial
judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge from
opposite directions, with neither being willing to slow up and give the right of way to the other, with
the inevitable result of a collision and an accident.

G.R. No. 178610

November 17, 2010

HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN, Retirement
Trust
Fund,
Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
DECISION
CARPIO, J.:
G.R. No. 178610 is a petition for review 1 assailing the Decision2 promulgated on 30 March 2006 by the
Court of Appeals (CA) in CA-G.R. SP No. 62685. The appellate court granted the petition filed by Fe
Gerong (Gerong) and Spouses Bienvenido and Editha Broqueza (spouses Broqueza) and dismissed the
consolidated complaints filed by Hongkong and Shanghai Banking Corporation, Ltd. - Staff Retirement
Plan (HSBCL-SRP) for recovery of sum of money. The appellate court reversed and set aside the
Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil Case No. 00-787 dated
11 December 2000, as well as its Order4 dated 5 September 2000. The RTCs decision affirmed the

Decision5 dated 28 December 1999 of Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City
in Civil Case No. 52400 for Recovery of a Sum of Money.
The Facts
The appellate court narrated the facts as follows:

The dispositive portion of the MeTCs decision reads:

WHEREFORE, premises considered and in view of the foregoing, the Court finds that the plaintiff was
able to prove by a preponderance of evidence the existence and immediate demandability of the
defendants loan obligations as judgment is hereby rendered in favor of the plaintiff and against the
defendants in both cases, ordering the latter:

Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of Hongkong and
Shanghai Banking Corporation (HSBC). They are also members of respondent Hongkong Shanghai
Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP, plaintiff below). The HSBCL-SRP is a
retirement plan established by HSBC through its Board of Trustees for the benefit of the employees.

1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at six percent interest per
annum from the time of demand and in Civil Case No. 52911, to pay the amount of
Php25,344.12 at six percent per annum from the time of the filing of these cases, until the
amount is fully paid;

On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of
Php175,000.00. On December 12, 1991, she again applied and was granted an appliance loan in the
amount of Php24,000.00. On the other hand, petitioner Gerong applied and was granted an
emergency loan in the amount of Php35,780.00 on June 2, 1993. These loans are paid through
automatic salary deduction.

2. To pay the amount of Php20,000.00 each as reasonable attorneys fees;

Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of HSBCs
employees were terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The
employees then filed an illegal dismissal case before the National Labor Relations Commission (NLRC)
against HSBC. The legality or illegality of such termination is now pending before this appellate Court
in CA G.R. CV No. 56797, entitledHongkong Shanghai Banking Corp. Employees Union, et al. vs.
National Labor Relations Commission, et al.
Because of their dismissal, petitioners were not able to pay the monthly amortizations of their
respective loans. Thus, respondent HSBCL-SRP considered the accounts of petitioners delinquent.
Demands to pay the respective obligations were made upon petitioners, but they failed to pay.6
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. Custodio, filed Civil
Case No. 52400 against the spouses Broqueza on 31 July 1996. On 19 September 1996, HSBCL-SRP
filed Civil Case No. 52911 against Gerong. Both suits were civil actions for recovery and collection of
sums of money.
The Metropolitan Trial Courts Ruling
On 28 December 1999, the MeTC promulgated its Decision 7 in favor of HSBCL-SRP. The MeTC ruled
that the nature of HSBCL-SRPs demands for payment is civil and has no connection to the ongoing
labor dispute. Gerong and Editha Broquezas termination from employment resulted in the loss of
continued benefits under their retirement plans. Thus, the loans secured by their future retirement
benefits to which they are no longer entitled are reduced to unsecured and pure civil obligations. As
unsecured and pure obligations, the loans are immediately demandable.

3. Cost of suit.
SO ORDERED.8
Gerong and the spouses Broqueza filed a joint appeal of the MeTCs decision before the RTC. Gerongs
case was docketed Civil Case No. 00-786, while the spouses Broquezas case was docketed as Civil
Case No. 00-787.
The Regional Trial Courts Ruling
The RTC initially denied the joint appeal because of the belated filing of Gerong and the spouses
Broquezas memorandum. The RTC later reconsidered the order of denial and resolved the issues in
the interest of justice.
On 11 December 2000, the RTC affirmed the MeTCs decision in toto. 9
The RTC ruled that Gerong and Editha Broquezas termination from employment disqualified them
from availing of benefits under their retirement plans. As a consequence, there is no longer any
security for the loans. HSBCL-SRP has a legal right to demand immediate settlement of the unpaid
balance because of Gerong and Editha Broquezas continued default in payment and their failure to
provide new security for their loans. Moreover, the absence of a period within which to pay the loan
allows HSBCL-SRP to demand immediate payment. The loan obligations are considered pure
obligations, the fulfillment of which are demandable at once.
Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA.
The Ruling of the Court of Appeals

On 30 March 2006, the CA rendered its Decision 10 which reversed the 11 December 2000 Decision of
the RTC. The CA ruled that the HSBCL-SRPs complaints for recovery of sum of money against Gerong
and the spouses Broqueza are premature as the loan obligations have not yet matured. Thus, no
cause of action accrued in favor of HSBCL-SRP. The dispositive portion of the appellate courts Decision
reads as follows:

before until fully paid the sum of PESOS ___ (P___) Philippine Currency without discount, with interest
from date hereof at the rate of Six per cent (6%) per annum, payable monthly.

WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE. A new one is hereby
rendered DISMISSING the consolidated complaints for recovery of sum of money.

I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of the
principal without notice to the other(s), and in such a case our liability shall remain joint and
several.1avvphi1

I/WE agree that the PLAN may, upon written notice, increase the interest rate stipulated in this note at
any time depending on prevailing conditions.

SO ORDERED.11
HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in its
Resolution12promulgated on 19 June 2007.

In case collection is made by or through an attorney, I/WE jointly and severally agree to pay ten
percent (10%) of the amount due on this note (but in no case less than P200.00) as and for attorneys
fees in addition to expenses and costs of suit.

On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because
she already settled her obligations. In a Resolution 13 of this Court dated 10 September 2007, this
Court treated the manifestation as a motion to withdraw the petition against Gerong, granted the
motion, and considered the case against Gerong closed and terminated.

In case of judicial execution, I/WE hereby jointly and severally waive our rights under the provisions of
Rule 39, Section 12 of the Rules of Court. 15

Issues

Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once.

In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:

HSBCL-SRP enumerated the following grounds to support its Petition:

x x x. (Emphasis supplied.)
I. The Court of Appeals has decided a question of substance in a way not in accord with law
and applicable decisions of this Honorable Court; and
II. The Court of Appeals has departed from the accepted and usual course of judicial
proceedings in reversing the decision of the Regional Trial Court and the Metropolitan Trial
Court.14

We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the
Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not contain a period,
HSBCL-SRP has the right to demand immediate payment. Article 1179 of the Civil Code applies. The
spouses Broquezas obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was
content with the prior monthly check-off from Editha Broquezas salary is of no moment. Once Editha
Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a pure obligation.

The Courts Ruling

The petition is meritorious. We agree with the rulings of the MeTC and the RTC.
The Promissory Notes uniformly provide:
PROMISSORY NOTE
P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE HSBC RETIREMENT
PLAN (hereinafter called the "PLAN") at its office in the Municipality of Makati, Metro Manila, on or

In their Answer, the spouses Broqueza admitted that prior to Editha Broquezas dismissal from HSBC
in December 1993, she "religiously paid the loan amortizations, which HSBC collected through payroll
check-off."16A definite amount is paid to HSBCL-SRP on a specific date. Editha Broqueza authorized
HSBCL-SRP to make deductions from her payroll until her loans are fully paid. Editha Broqueza,
however, defaulted in her monthly loan payment due to her dismissal. Despite the spouses Broquezas
protestations, the payroll deduction is merely a convenient mode of payment and not the sole source
of payment for the loans. HSBCL-SRP never agreed that the loans will be paid only through salary
deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an employee of HSBC,
her obligation to pay the loans will be suspended. HSBCL-SRP can immediately demand payment of
the loans at anytime because the obligation to pay has no period. Moreover, the spouses Broqueza
have already incurred in default in paying the monthly installments.

Finally, the enforcement of a loan agreement involves "debtor-creditor relations founded on contract
and does not in any way concern employee relations. As such it should be enforced through a separate
civil action in the regular courts and not before the Labor Arbiter." 17
WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. SP No. 62685
promulgated on 30 March 2006 is REVERSED and SET ASIDE. The decision of Branch 139 of the
Regional Trial Court of Makati City in Civil Case No. 00-787, as well as the decision of Branch 61 of the
Metropolitan Trial Court of Makati City in Civil Case No. 52400 against the spouses Bienvenido and
Editha Broqueza, are AFFIRMED. Costs against respondents.
SO ORDERED.

SECOND DIVISION

G.R. No. L-29900 June 28, 1974

IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE
PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
Florentino B. del Rosario for petitioner-appellant.
Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p
There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While
several points were raised, the decisive issue is whether a creditor is barred by prescription in his
attempt to collect on a promissory note executed more than fifteen years earlier with the debtor sued
promising to pay either upon receipt by him of his share from a certain estate or upon demand, the
basis for the action being the latter alternative. The lower court held that the ten-year period of
limitation of actions did apply, the note being immediately due and demandable, the creditor admitting
expressly that he was relying on the wording "upon demand." On the above facts as found, and with
the law being as it is, it cannot be said that its decision is infected with error. We affirm.

From the appealed decision, the following appears: "The parties in this case agreed to submit the
matter for resolution on the basis of their pleadings and annexes and their respective memoranda
submitted. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3,
1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the
late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount
of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now before this
Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo Palanca, he
appointed as administratrix of a certain piece of property which is a residential dwelling located at
2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo Palanca,
assessed at P41,800.00. The idea is that once said property is brought under administration, George
Pay, as creditor, can file his claim against the administratrix." 1 It then stated that the petition could
not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no longer belonged to the debtor, the late
Justo Palanca; and that the rights of petitioner-creditor had already prescribed. The promissory note,
dated January 30, 1962, is worded thus: " `For value received from time to time since 1947, we
[jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking
Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest
thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment
from the Estate of the late Don Carlos Palanca orupon demand'. . . . As stated, this promissory note is
signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then came this paragraph: "The
Court has inquired whether any cash payment has been received by either of the signers of this
promissory note from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist
on this provision but that petitioner is only claiming on his right under the promissory note ." 3 After
which, came the ruling that the wording of the promissory note being "upon demand," the obligation
was immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10)
years has already transpired from that time until to date. The action, therefore, of the creditor has
definitely prescribed." 4 The result, as above noted, was the dismissal of the petition.
In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the
correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of
the late Justo Palanca to be appointed as administratrix, as to the property sought to be administered
no longer belonging to the debtor, the late Justo Palanca, and as to the rights of petitioner-creditor
having already prescribed. As noted at the outset, only the question of prescription need detain us in
the disposition of this appeal. Likewise, as intimated, the decision must be affirmed, considering the
clear tenor of the promissory note.
From the manner in which the promissory note was executed, it would appear that petitioner was
hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving
cash payment from the estate of the late Carlos Palanca presumptively as one of the heirs, or, as
expressed therein, "upon demand." There is nothing in the record that would indicate whether or not
the first alternative was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen
years after the execution of the promissory note on January 30, 1952, this petition was filed. The
defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil Code
provides: "Every obligation whose performance does not depend upon a future or uncertain event, or

upon a past event unknown to the parties, is demandable at once." This used to be Article 1113 of the
Spanish Civil Code of 1889. As far back as Floriano v. Delgado, 5 a 1908 decision, it has been applied
according to its express language. The well-known Spanish commentator, Manresa, on this point,
states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se
fija, para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia
de aquel: la exigibilidad immediata." 6
The obligation being due and demandable, it would appear that the filing of the suit after fifteen years
was much too late. For again, according to the Civil Code, which is based on Section 43 of Act No.
190, the prescriptive period for a written contract is that of ten years. 7 This is another instance where
this Court has consistently adhered to the express language of the applicable norm. 8 There is no
necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the
petition to fail just because the surviving spouse refuses to be made administratrix, or just because
the estate was left with no other property. The decision of the lower court cannot be overturned.
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.
Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.

EN BANC
G.R. No. L-16570

March 9, 1922

SMITH,
BELL
&
vs.
VICENTE SOTELO MATTI, defendant-appellant.
Ross
and
Lawrence
and
Ramon Sotelo for defendant-appellant.

Ewald

CO.,

E.

LTD., plaintiff-appellant,

Selph

for

plaintiff-appellant.

ROMUALDEZ, J.:
In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts
whereby the former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the
total price of twenty-one thousand pesos (P21,000), the same to be shipped from New York and
delivered at Manila "within three or four months;" two expellers at the price of twenty five thousand
pesos (P25,000) each, which were to be shipped from San Francisco in the month of September, 1918,
or as soon as possible; and two electric motors at the price of two thousand pesos (P2,000) each, as
to the delivery of which stipulation was made, couched in these words: "Approximate delivery within
ninety days. This is not guaranteed."

The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918;
and the motors on the 27th of February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo
refused to receive them and to pay the prices stipulated.
The plaintiff brought suit against the defendant, based on four separate causes of action, alleging,
among other facts, that it immediately notified the defendant of the arrival of the goods, and asked
instructions from him as to the delivery thereof, and that the defendant refused to receive any of them
and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in good
condition. (Amended complaint, pages 16-30, Bill of Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products
Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at
Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their
price, and the good condition of the expellers and the motors, alleging as special defense that Mr.
Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil Refining and
By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919, that it
notified the intervenor that said tanks had arrived, the motors and the expellers having arrived
incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege that, as a
consequence of the plaintiff's delay in making delivery of the goods, which the intervenor intended to
use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of one hundred
sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91) for the
nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250) on account
of the expellers and the motors not having arrived in due time.
The case having been tried, the court below absolved the defendants from the complaint insofar as the
tanks and the electric motors were concerned, but rendered judgment against them, ordering them to
"receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50,00), the
price of the said goods, with legal interest thereon from July 26, 1919, and costs."
Both parties appeal from this judgment, each assigning several errors in the findings of the lower
court.
The principal point at issue in this case is whether or not, under the contracts entered into and the
circumstances established in the record, the plaintiff has fulfilled, in due time, its obligation to bring
the goods in question to Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must
be held guilty of delay and liable for the consequences thereof.
To solve this question, it is necessary to determine what period was fixed for the delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of
them we find this clause:

To be delivered within 3 or 4 months The promise or indication of shipment carries with it

absolutely no obligation on our part Government regulations, railroad embargoes, lack of
vessel space, the exigencies of the requirement of the United States Government, or a number
of causes may act to entirely vitiate the indication of shipment as stated. In other words, the
order is accepted on the basis of shipment at Mill's convenience, time of shipment being
merely an indication of what we hope to accomplish.
In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following
stipulation appears:
The following articles, hereinbelow more particularly described, to be shipped at San Francisco
within the month of September /18, or as soon as possible. Two Anderson oil expellers . . . .

export of the goods, nor of the fact that the other foreseen circumstances therein stated might
prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude that the term which
the parties attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those
articles could be brought to Manila or not. If that is the case, as we think it is, the obligations must be
regarded as conditional.
Obligations for the performance of which a day certain has been fixed shall be demandable
only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even though its date be
unknown.

And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:
Approximate delivery within ninety days. This is not guaranteed. This sale is subject to
our being able to obtain Priority Certificate, subject to the United States Government
requirements and also subject to confirmation of manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes
or other causes known as "Force Majeure" entirely beyond the control of the sellers or their
representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the
goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or 4 months,"
but that period was subject to the contingencies referred to in a subsequent clause. With regard to the
expellers, the contract says "within the month of September, 1918," but to this is added "or as soon as
possible." And with reference to the motors, the contract contains this expression, "Approximate
delivery within ninety days," but right after this, it is noted that "this is not guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the time of the world war when
there existed rigid restrictions on the export from the United States of articles like the machinery in
question, and maritime, as well as railroad, transportation was difficult, which fact was known to the
parties; hence clauses were inserted in the contracts, regarding "Government regulations, railroad
embargoes, lack of vessel space, the exigencies of the requirements of the United States
Government," in connection with the tanks and "Priority Certificate, subject to the United State
Government requirements," with respect to the motors. At the time of the execution of the contracts,
the parties were not unmindful of the contingency of the United States Government not allowing the

If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is
conditional and shall be governed by the rules of the next preceding section. (referring to pure
and conditional obligations). (Art. 1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the contract, contingent upon the
sellers obtaining certificate of priority and permission of the United States Government, subject to the
rules and regulations, as well as to railroad embargoes, then the delivery was subject to a condition
the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of
third persons who could in no way be compelled to fulfill the condition. In cases like this, which are not
expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have
sufficiently performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.
In such cases, the decisions prior to the Civil Code have held that the obligee having done all
that was in his power, was entitled to enforce performance of the obligation. This performance,
which is fictitious not real is not expressly authorized by the Code, which limits itself only
to declare valid those conditions and the obligation thereby affected; but it is neither
disallowed, and the Code being thus silent, the old view can be maintained as a doctrine.
(Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.)
The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on
November 19, 1896, and February 23, 1871.
In the former it is held:
First. That when the fulfillment of the conditions does not depend on the will of the obligor, but
on that of a third person who can in no way be compelled to carry it out, and it is found by the
lower court that the obligor has done all in his power to comply with the obligation, the
judgment of the said court, ordering the other party to comply with his part of the contract, is

not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima
Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no
law or precedent is alleged to have been violated. (Jurisprudencia Civil published by the
directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14, page 656.)
In the second decision, the following doctrine is laid down:
Second. That when the fulfillment of the condition does not depend on the will of the obligor,
but on that of a third person, who can in no way be compelled to carry it out, the obligor's
part of the contract is complied withalf Belisario not having exercised his right of repurchase
reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio
Borja for the consolidacion de dominio was presented for record in the registry of deeds and
recorded in the registry on the same date.
(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children,
Vitaliana, Eugenio, and Aureno Belisario as his only heirs.
(33) That in the execution and sales thereunder, in which C. H. McClure appears as the
judgment creditor, he was represented by the opponent Peter W. Addison, who prepared and
had charge of publication of the notices of the various sales and that in none of the sales was
the notice published more than twice in a newspaper.
The claims of the opponent-appellant Addison have been very fully and ably argued by his
counsel but may, we think, be disposed of in comparatively few words. As will be seen from
the foregoing statement of facts, he rest his title (1) on the sales under the executions issued
in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with
the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase
from the Director of Lands after the land in question had been forfeited to the Government for
non-payment of taxes under Act No. 1791.
The sheriff's sales under the execution mentioned are fatally defective for what of sufficient
publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as
follows:
SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows:
1. In case of perishable property, by posing written notice of the time and place of the sale in
three public places of the municipality or city where the sale is to take place, for such time as
may be reasonable, considering the character and condition of the property;
2. *

3. In cases of real property, by posting a similar notice particularly describing the property, for
twenty days in three public places of the municipality or city where the property is situated,
and also where the property is to be sold, and publishing a copy thereof once a week, for the
same period, in some newspaper published or having general circulation in the province, if
there be one. If there are newspaper published in the province in both the Spanish and English
languages, then a like publication for a like period shall be made in one newspaper published
in the Spanish language, and in one published in the English language:Provided,
however, That such publication in a newspaper will not be required when the assessed
valuation of the property does not exceed four hundred pesos;
4. *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14,
1916; the notice first published gave the date of the sale as October 15th, but upon discovering that
October 15th was a Sunday, the date was changed to October 14th. The correct notice was published
twice in a local newspaper, the first publication was made on October 7th and the second and last on
October 14th, the date of the sale itself. The newspaper is a weekly periodical published every
Saturday afternoon.
In case No. 454 there were only two publications of the notice in a newspaper, the first publication
being made only fourteen days before the date of the sale. In case No. 499, there were also only two
publications, the first of which was made thirteen days before the sale. In the last case the sale was
advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section
457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in
the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by
the judgment creditor or his agent, who also took charged of the publication of such notices.
In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a
sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the
judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void
and not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever
the rule may be elsewhere.
It appears affirmatively from the evidence in the present case that there is a newspaper published in
the province where the sale in question took place and that the assessed valuation of the property
disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with what
was actually done, it is self-evident that notices of the sales mentioned were not given as prescribed
by the statute and taking into consideration that in connection with these sales the appellant Addison
was either the judgment creditor or else occupied a position analogous to that of a judgment creditor,
the sales must be held invalid.

The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The
provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for nonpayment of taxes are found in section 19 of the Act and read:
. . . In case such redemption be not made within the time above specified the Government of
the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon the
expiration of the said ninety days, if redemption be not made, the provincial treasurer shall
immediately notify the Director of Lands of the forfeiture and furnish him with a description of
the property, and said Director of Lands shall have full control and custody thereof to lease or
sell the same or any portion thereof in the same manner as other public lands are leased or
sold: Provided, That the original owner, or his legal representative, shall have the right to
repurchase the entire amount of his said real property, at any time before a sale or contract of
sale has been made by the director of Lands to a third party, by paying therefore the whole
sum due thereon at the time of ejectment together with a penalty of ten per centum . . . .
The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do
so as the successor in interest of the original owner under the execution sale above discussed. As we
have seen, he acquired no rights under these sales, was therefore not the successor of the original
owner and could only have obtained a valid conveyance of such titles as the Government might have
by following the procedure prescribed by the Public Land Act for the sale of public lands. he is entitled
to reimbursement for the money paid for the redemption of the land, with interest, but has acquired
no title through the redemption.
The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to
Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's
or execution sales cannot be validated through inscription in the Mortgage Law registry.
The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was
community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira
inealed from is modified, and the defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive
from the plaintiff the tanks, the expellers and the motors in question, and to pay the plaintiff the sum
of ninety-six thousand pesos (P96,000), with legal interest thereon from July 17, 1919, the date of the
filing of the complaint, until fully paid, and the costs of both instances. So ordered.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD

BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where the time for
compliance had expired and there was breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the performance of the contract before
filing
his
complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE
PHILIPPINES. Where the defendant virtually admitted non-performance of the contract by returning
the typewriter that he was obliged to repair in a non-working condition, with essential parts missing,
Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of a period would thus
be
a
mere
formality
and
would
serve
no
purpose
than
to
delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendant-appellee
contravened the tenor of his obligation because he not only did not repair the typewriter but returned
it "in shambles, he is liable for the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75, because the obligation or contract was to repair it. In
addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the
amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected,
to
return
it
in
the
same
condition
it
was
when
he
received
it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT RECOVERABLE; NOT ALLEGED OR
PROVED IN INSTANT CASE. Claims for damages and attorneys fees must be pleaded, and the
existence of the actual basis thereof must be proved. As no findings of fact were made on the claims
for damages and attorneys fees, there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY
QUESTIONS OF LAW REVIEWABLE. Where the appellant directly appeals from the decision of the
trial court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo
on its findings of fact.

DECISION
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur.
REYES, J.B.L., J.:
EN
[G.R.

BANC
No.

L-27454.

April

30,

1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves,

Elio,

Chaves

&

Associates,

for Plaintiff-Appellant.

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of
damages but was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its
Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of P690 00 for actual,
temperate
and
moral
damages
and
attorneys
fees.
The

appealed

judgment,

which

is

brief,

is

hereunder

quoted

in

full:jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a
portable typewriter for routine cleaning and servicing. The defendant was not able to finish the job
after some time despite repeated reminders made by the plaintiff. The defendant merely gave
assurances, but failed to comply with the same. In October, 1963, the defendant asked from the
plaintiff the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter.
The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff
examined the typewriter returned to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws missing. On October 29, 1963. the
plaintiff sent a letter to the defendant formally demanding the return of the missing parts, the interior
cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff
some
of
the
missing
parts,
the
interior
cover
and
the
P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the
repair job cost him a total of P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding
from the defendant the payment of P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this court, the defendant made no denials of
the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the
defendant through a certain Julio Bocalin, which the defendant denied allegedly because the typewriter
was
delivered
to
him
personally
by
the
plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should
not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the
missing
parts
had
a
total
value
of
only
P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of
P31.10,
and
the
costs
of
suit.
"SO

ORDERED."cralaw

virtua1aw

library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it
awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor and
materials that went into the repair of the machine, as provided for in Article 1167 of the Civil Code,
reading
as
follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable
at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not contain a
period, so that plaintiff-appellant should have first filed a petition for the court to fix the period, under
Article 1197 of the Civil Code, within which the defendant appellee was to comply with the contract

before

said

defendant-appellee

could

be

held

liable

for

breach

of

contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any
appeal, the facts, as found by the trial court, are now conclusive and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter
for routine cleaning and servicing" ; that the defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff" ; that the "defendant merely gave assurances, but
failed to comply with the same" ; and that "after getting exasperated with the delay of the repair of
the typewriter", the plaintiff went to the house of the defendant and asked for its return, which was
done. The inferences derivable from these findings of fact are that the appellant and the appellee had
a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant was
to finish it at some future time although such time was not specified; and that such time had passed
without the work having been accomplished, far the defendant returned the typewriter cannibalized
and unrepaired, which in itself is a breach of his obligation, without demanding that he should be
given more time to finish the job, or compensation for the work he had already done. The time for
compliance having evidently expired, and there being a breach of contract by non-performance, it was
academic for the plaintiff to have first petitioned the court to fix a period for the performance of the
contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code
for he virtually admitted non-performance by returning the typewriter that he was obliged to repair in
a non-working condition, with essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil.
18l).
It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did
not repair the typewriter but returned it "in shambles", according to the appealed decision. For such
contravention, as appellant contends, he is liable under Article 1167 of the Civil Code. jam quot, for
the cost of executing the obligation in a proper manner. The cost of the execution of the obligation in
this case should be the cost of the labor or service expended in the repair of the typewriter, which is in
the
amount
of
P58.75.
because
the
obligation
or
contract
was
to
repair
it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of
the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound,
but failed or neglected, to return it in the same condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees were, however, correctly
rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5).
Claims for damages and attorneys fees must be pleaded, and the existence of the actual basis thereof
must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on the claims for damages and
attorneys fees, there is no factual basis upon which to make an award therefor. Appellant is bound by
such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on
questions
of
law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the
defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85,
with interest at the legal rate from the filing of the complaint. Costs in all instances against appellee
Fructuoso
Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.

Barredo, J., did not take part.

EN BANC
G.R. No. L-264

October 4, 1946

VICENTE
SINGSON
vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.
Bausa
and
Tolentino and Aguas for appellee.

Ampil

ENCARNACION, plaintiff-appellee,

for

appellants.

HILADO, J.:
Vicente Singson Encarnacion, owner of the house numbered 589 Legarda Street, Manila, some six
years ago leased said house to Jacinto Baldomar and her son, Lefrado Fernando, upon a month-tomonth basis for the monthly rental of P35. After Manila was liberated in the last war, specifically on
March 16, 1945, and on April 7, of the same year, plaintiff Singson Encarnacion notified defendants,
the said mother and son, to vacate the house above-mentioned on or before April 15, 1945, because
plaintiff needed it for his offices as a result of the destruction of the building where said plaintiff had
said offices before. Despite this demand, defendants insisted on continuing their occupancy. When the
original action was lodged with the Municipal Court of Manila on April 20, 1945, defendants were in
arrears in the payment of the rental corresponding to said month, the agrees rental being payable
within the first five days of each month. That rental was paid prior to the hearing of the case in the
municipal court, as a consequence of which said court entered judgment for restitution and payment
of rentals at the rate of P35 a month from May 1, 1945, until defendants completely vacate the
premises. Although plaintiff included in said original complaint a claim for P500 damages per month,
that claim was waived by him before the hearing in the municipal court, on account of which nothing
was said regarding said damages in the municipal court's decision.
When the case reached the Court of First Instance of Manila upon appeal, defendants filed therein a
motion to dismiss (which was similar to a motion to dismiss filed by them in the municipal court)
based upon the ground that the municipal court had no jurisdiction over the subject matter due to the
aforesaid claim for damages and that, therefore, the Court of First Instance had no appellate
jurisdiction over the subject matter of the action. That motion to dismiss was denied by His Honor,
Judge Mamerto Roxas, by order dated July 21, 1945, on the ground that in the municipal court
plaintiff had waived said claim for damages and that, therefore, the same waiver was understood also
to have been made in the Court of First Instance.lawphil.net

In the Court of First Instance the graveman of the defense interposed by defendants, as it was
expressed defendant Lefrado Fernando during the trial, was that the contract which they had
celebrated with plaintiff since the beginning authorized them to continue occupying the house
indefinetly and while they should faithfully fulfill their obligations as respects the payment of the
rentals, and that this agreement had been ratified when another ejectment case between the parties
filed during the Japanese regime concerning the same house was allegedly compounded in the
municipal court. The Court of First Instance gave more credit to plaintiff's witness, Vicente Singson
Encarnacion, jr., who testified that the lease had always and since the beginning been upon a monthto-month basis. The court added in its decision that this defense which was put up by defendant's
answer, for which reason the Court considered it as indicative of an eleventh-hour theory. We think
that the Court of First Instance was right in so declaring. Furthermore, carried to its logical conclusion,
the defense thus set up by defendant Lefrado Fernando would leave to the sole and exclusive will of
one of the contracting parties (defendants in this case) the validity and fulfillment of the contract of
lease, within the meaning of article 1256 of the Civil Code, since the continuance and fulfillment of the
contract would then depend solely and exclusively upon their free and uncontrolled choice between
continuing paying the rentals or not, completely depriving the owner of all say in the matter. If this
defense were to be allowed, so long as defendants elected to continue the lease by continuing the
payment of the rentals, the owner would never be able to discontinue it; conversely, although the
owner should desire the lease to continue, the lessees could effectively thwart his purpose if they
should prefer to terminate the contract by the simple expedient of stopping payment of the rentals.
This, of course, is prohibited by the aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626,
627; Cuyugan vs. Santos, 34 Phil., 100.)
During the pendency of the appeal in the Court of First Instance and before the judgment appealed
from was rendered on October 31, 1945, the rentals in areas were those pertaining to the month of
August, 1945, to the date of said judgment at the rate of P35 a month. During the pendency of the
appeal in that court, certain deposits were made by defendants on account of rentals with the clerk of
said court, and in said judgment it is disposed that the amounts thus deposited should be delivered to
plaintiff.
Upon the whole, we are clearly of opinion that the judgment appealed from should be, as it is hereby,
affirmed, with the costs of the three instances to appellants. So ordered.
Paras, Pablo, Perfecto and Padilla, JJ., concur.

EN BANC
G.R. No. 967

May 19, 1903

DARIO
AND
GAUDENCIO
vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.
Pillsburry
and
Manuel Torres Vergara for appellee.

Sutro

ELEIZEGUI, plaintiffs-appellees,

for

appellant.

ARELLANO, C. J.:
This suit concerns the lease of a piece of land for a fixed consideration and to endure at the will of the
lessee. By the contract of lease the lessee is expressly authorized to make improvements upon the
land, by erecting buildings of both permanent and temporary character, by making fills, laying pipes,
and making such other improvements as might be considered desirable for the comfort and
amusement of the members.
With respect to the term of the lease the present question has arisen. In its decision three theories
have been presented: One which makes the duration depend upon the will of the lessor, who, upon
one month's notice given to the lessee, may terminate the lease so stipulated; another which, on the
contrary, makes it dependent upon the will of the lessee, as stipulated; and the third, in accordance
with which the right is reversed to the courts to fix the duration of the term.
The first theory is that which has prevailed in the judgment below, as appears from the language in
which the basis of the decision is expressed: "The court is of the opinion that the contract of lease was
terminated by the notice given by the plaintiff on August 28 of last year . . . ." And such is the theory
maintained by the plaintiffs, which expressly rests upon article 1581 of the Civil Code, the law which
was in force at the time the contract was entered into (January 25, 1890). The judge, in giving to this
notice the effect of terminating the lease, undoubtedly considers that it is governed by the article
relied upon by the plaintiffs, which is of the following tenor: "When the term has not been fixed for the
lease, it is understood to be for years when an annual rental has been fixed, for months when the rent
is monthly. . . ." The second clause of the contract provides as follows: "The rent of the said land is
fixed at 25 pesos per month." (P. 11, Bill of Exceptions.)
In accordance with such a theory, the plaintiffs might have terminated the lease the month following
the making of the contract at any time after the first month, which, strictly speaking, would be the
only month with respect to which they were expressly bound, they not being bound for each
successive month except by a tacit renewal (art. 1566) an effect which they might prevent by
giving the required notice.
Although the relief asked for in the complaint, drawn in accordance with the new form of procedure
established by the prevailing Code, is the restitution of the land to the plaintiffs (a formula common to
various actions), nevertheless the action which is maintained can be no other than that of desahucio,
in accordance with the substantive law governing the contract. The lessor says article 1569 of the
Civil Code may judicially dispossess the lessee upon the expiration of the conventional term or of

the legal term; the conventional term that is, the one agreed upon by the parties; the legal term, in
defect of the conventional, fixed for leases by articles 1577 and 1581. We have already seen what this
legal term is with respect to urban properties, in accordance with article 1581.
Hence, it follows that the judge has only to determine whether there is or is not conventional term. If
there be a conventional term, he can not apply the legal term fixed in subsidium to cover a case in
which the parties have made no agreement whatsoever with respect to the duration of the lease. In
this case the law interprets the presumptive intention of the parties, they having said nothing in the
contract with respect to its duration. "Obligations arising from contracts have the force of law between
the contracting parties and must be complied with according to the tenor of the contracts." (Art. 1091
of the Civil Code.)
The obligations which, with the force of law, the lessors assumed by the contract entered into, so far
as pertaining to the issues, are the following: "First. . . . They lease the above-described land to Mr.
Williamson, who takes it onlease, . . . for all the time the members of the said club may desire to use
it . . . Third. . . . the owners of the land undertake to maintain the club as tenant as long as the latter
shall see fit, without altering in the slightest degree the conditions of this contract, even though the
estate be sold."
It is necessary, therefore, to answer the first question: Was there, or was there not, a conventional
term, a duration, agreed upon in the contract in question? If there was an agreed duration, a
conventional term, then the legal term the term fixed in article 1581 has no application; the
contract is the supreme law of the contracting parties. Over and above the general law is the special
law, expressly imposed upon themselves by the contracting parties. Without these clauses 1 and 3,
the contract would contain no stipulation with respect to the duration of the lease, and then article
1581, in connection with article 1569, would necessarily be applicable. In view of these clauses,
however, it can not be said that there is no stipulation with respect to the duration of the lease, or
that, notwithstanding these clauses, article 1581, in connection with article 1569, can be applied. If
this were so, it would be necessary to hold that the lessors spoke in vain that their words are to be
disregarded a claim which can not be advanced by the plaintiffs nor upheld by any court without
citing the law which detracts all legal force from such words or despoils them of their literal sense.
It having been demonstrated that the legal term can not be applied, there being a conventional term,
this destroys the assumption that the contract of lease was wholly terminated by the notice given by
the plaintiffs, this notice being necessary only when it becomes necessary to have recourse to the
legal term. Nor had the plaintiffs, under the contract, any right to give such notice. It is evident that
they had no intention of stipulating that they reserved the right to give such notice. Clause 3 begins as
follows: "Mr. Williamson, or whoever may succeed him as secretary of said club, may terminate this
lease whenever desired without other formality than that of giving a month's notice. The owners of the
land undertake to maintain the club as tenant as long as the latter shall see fit." The right of the one
and the obligation of the others being thus placed in antithesis, there is something more, much more,
than the inclusio unius, exclusio alterius. It is evident that the lessors did not intend to reserve to
themselves the right to rescind that which they expressly conferred upon the lessee by establishing it
exclusively in favor of the latter.

It would be the greatest absurdity to conclude that in a contract by which the lessor has left the
termination of the lease to the will of the lessee, such a lease can or should be terminated at the will
of the lessor.
It would appear to follow, from the foregoing, that, if such is the force of the agreement, there can be
no other mode of terminating the lease than by the will of the lessee, as stipulated in this case. Such
is the conclusion maintained by the defendant in the demonstration of the first error of law in the
judgment, as alleged by him. He goes so far, under this theory, as to maintain the possibility of a
perpetual lease, either as such lease, if the name can be applied, or else as an innominate contract, or
under any other denomination, in accordance with the agreement of the parties, which is, in fine, the
law of the contract, superior to all other law, provided that there be no agreement against any
prohibitive statute, morals, or public policy.
It is unnecessary here to enter into a discussion of a perpetual lease in accordance with the law and
doctrine prior to the Civil Code now in force, and which has been operative since 1889. Hence the
judgment of the supreme court of Spain of January 2, 1891, with respect to a lease made in 1887,
cited by the defendant, and a decision stated by him to have been rendered by the Audiencia of
Pamplona in 1885 (it appears to be rather a decision by the head office of land registration of July 1,
1885), and any other decision which might be cited based upon the constitutions of Cataluna,
according to which a lease of more than ten years is understood to create a life tenancy, or even a
perpetual tenancy, are entirely out of point in this case, in which the subject-matter is a lease entered
into under the provisions of the present Civil Code, in accordance with the principles of which alone
can this doctrine be examined.
It is not to be understood that we admit that the lease entered into was stipulated as a life tenancy,
and still less as a perpetual lease. The terms of the contract express nothing to this effect. They do,
whatever, imply this idea. If the lease could last during such time as the lessee might see fit, because
it has been so stipulated by the lessor, it would last, first, as long as the will of the lessee that is, all
his life; second, during all the time that he may have succession, inasmuch as he who contracts does
so for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question does not fall within
any of the cases in which the rights and obligations arising from a contract can not be transmitted to
heirs, either by its nature, by agreement, or by provision of law. Furthermore, the lessee is an English
association.
Usufruct is a right of superior degree to that which arises from a lease. It is a real right and includes
all the jus utendi and jus fruendi. Nevertheless, the utmost period for which a usufruct can endure, if
constituted in favor a natural person, is the lifetime of the usufructuary (art. 513, sec. 1); and if in
favor of juridical person, it can not be created for more than thirty years. (Art. 515.) If the lease might
be perpetual, in what would it be distinguished from an emphyteusis? Why should the lessee have a
greater right than the usufructuary, as great as that of an emphyteuta, with respect to the duration of
the enjoyment of the property of another? Why did they not contract for a usufruct or an
emphyteusis? It was repeatedly stated in the document that it was a lease, and nothing but a lease,
which was agreed upon: "Being in the full enjoyment of the necessary legal capacity to enter into this
contract of lease . . . they have agreed upon the lease of said estate . . . They lease to Mr. Williamson,

who receives it as such. . . . The rental is fixed at 25 pesos a month. . . . The owners bind themselves
to maintain the club as tenant. . . . Upon the foregoing conditions they make the present contract of
lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it must be for a determinate
period. (Art. 1543.) By its very nature it must be temporary, just as by reason of its nature an
emphyteusis must be perpetual, or for an unlimited period. (Art. 1608.)
On the other hand, it can not be concluded that the termination of the contract is to be left completely
at the will of the lessee, because it has been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of
obligations with a term it has supplied the deficiency of the former law with respect to the "duration of
the term when it has been left to the will of the debtor," and provides that in this case the term shall
be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the authorities, there is
always a creditor who is entitled to demand the performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral contracts the contracting parties are mutually
creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with respect to the
rights enumerated in article 1554, and is the debtor with respect to the obligations imposed by articles
1555 and 1561. The term within which performance of the latter obligation is due is what has been
left to the will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that by which it is sought
to obtain from the judge the determination of this period, and not the unlawful detainer action which
has been brought an action which presupposes the expiration of the term and makes it the duty of
the judge to simply decree an eviction. To maintain the latter action it is sufficient to show the
expiration of the term of the contract, whether conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge to look into the character and conditions of
the mutual undertakings with a view to supplying the lacking element of a time at which the lease is
to expire. In the case of a loan of money or a commodatum of furniture, the payment or return to be
made when the borrower "can conveniently do so" does not mean that he is to be allowed to enjoy the
money or to make use of the thing indefinitely or perpetually. The courts will fix in each case,
according to the circumstances, the time for the payment or return. This is the theory also maintained
by the defendant in his demonstration of the fifth assignment of error. "Under article 1128 of the Civil
Code," thus his proposition concludes, "contracts whose term is left to the will of one of the
contracting parties must be fixed by the courts, . . . the conditions as to the term of this lease has a
direct legislative sanction," and he cites articles 1128. "In place of the ruthless method of annihilating
a solemn obligation, which the plaintiffs in this case have sought to pursue, the Code has provided a
legitimate and easily available remedy. . . . The Code has provided for the proper disposition of those
covenants, and a case can hardly arise more clearly demonstrating the usefulness of that provision
than the case at bar." (Pp. 52 and 53 of appellant's brief.)
The plaintiffs, with respect to this conclusion on the part of their opponents, only say that article 1128
"expressly refers to obligations in contracts in general, and that it is well known that a lease is
included among special contracts." But they do not observe that if contracts, simply because special
rules are provided for them, could be excepted from the provisions of the articles of the Code relative

to obligations and contracts in general, such general provisions would be wholly without application.
The system of the Code is that of establishing general rules applicable to all obligations and contracts,
and then special provisions peculiar to each species of contract. In no part of Title VI of Book IV, which
treats of the contract of lease, are there any special rules concerning pure of conditional obligations
which may be stipulated in a lease, because, with respect to these matters, the provisions of section
1, chapter 3, Title I, on the subject of obligations are wholly sufficient. With equal reason should we
refer to section 2, which deals with obligations with a term, in the same chapter and title, if a question
concerning the term arises out of a contract of lease, as in the present case, and within this section we
find article 1128, which decides the question.
The judgment was entered below upon the theory of the expiration of a legal term which does not
exist, as the case requires that a term be fixed by the courts under the provisions of article 1128 with
respect to obligations which, as is the present, are terminable at the will of the obligee. It follows,
therefore, that the judgment below is erroneous.
The judgment is reversed and the case will be remanded to the court below with directions to enter a
judgment of dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club, without
special allowance as to the recovery of costs. So ordered.
Mapa
Torres, J., disqualified.

and

Ladd,

JJ., concur.

EN BANC
G.R. No. L-17587

September 12, 1967

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y

CANON
FAUSTINO,
deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng,
deceased,defendant-appellant.
Nicanor
S.
Sison
Ozaeta, Gibbs & Ozaeta for defendant-appellant.

for

plaintiff-appellant.

CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land
in Manila. This parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and opens
into Florentino Torres street at the back and Katubusan street on one side. In it are two residential
houses with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal
Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family in

the restaurant. Wong had been a long-time lessee of a portion of the property, paying a monthly
rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire property as her sister died
with no other heir. Then already well advanced in years, being at the time 90 years old, blind, crippled
and an invalid, she was left with no other relative to live with. Her only companions in the house were
her 17 dogs and 8 maids. Her otherwise dreary existence was brightened now and then by the visits of
Wong's four children who had become the joy of her life. Wong himself was the trusted man to whom
she delivered various amounts for safekeeping, including rentals from her property at the corner of
Ongpin and Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal
Avenue property. Wong also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral
expenses, masses, salaries of maids and security guard, and her household expenses.
"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed on
November 15, 1957 a contract of lease (Plff Exh. 3) in favor of Wong, covering the portion then
already leased to him and another portion fronting Florentino Torres street. The lease was for 50
years, although the lessee was given the right to withdraw at any time from the agreement; the
monthly rental was P3,120. The contract covered an area of 1,124 square meters. Ten days later
(November 25), the contract was amended (Plff Exh. 4) so as to make it cover the entire property,
including the portion on which the house of Justina Santos stood, at an additional monthly rental of
P360. For his part Wong undertook to pay, out of the rental due from him, an amount not exceeding
P1,000 a month for the food of her dogs and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving Wong the option to buy the leased
premises for P120,000, payable within ten years at a monthly installment of P1,000. The option,
written in Tagalog, imposed on him the obligation to pay for the food of the dogs and the salaries of
the maids in her household, the charge not to exceed P1,800 a month. The option was conditioned on
his obtaining Philippine citizenship, a petition for which was then pending in the Court of First Instance
of Rizal. It appears, however, that this application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28, 1958 she filed a petition to adopt him
and his children on the erroneous belief that adoption would confer on them Philippine citizenship. The
error was discovered and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff Exh. 5) extending the term of the
lease to 99 years, and another (Plff Exh. 6) fixing the term of the option of 50 years. Both contracts
are written in Tagalog.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she bade her legatees to
respect the contracts she had entered into with Wong, but in a codicil (Plff Exh. 17) of a later date
(November 4, 1959) she appears to have a change of heart. Claiming that the various contracts were
made by her because of machinations and inducements practiced by him, she now directed her
executor to secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First Instance of Manila. The complaint
alleged that the contracts were obtained by Wong "through fraud, misrepresentation, inequitable
conduct, undue influence and abuse of confidence and trust of and (by) taking advantage of the
helplessness of the plaintiff and were made to circumvent the constitutional provision prohibiting
aliens from acquiring lands in the Philippines and also of the Philippine Naturalization Laws." The court
was asked to direct the Register of Deeds of Manila to cancel the registration of the contracts and to

order Wong to pay Justina Santos the additional rent of P3,120 a month from November 15, 1957 on
the allegation that the reasonable rental of the leased premises was P6,240 a month.
In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he
volunteered the information that, in addition to the sum of P3,000 which he said she had delivered to
him for safekeeping, another sum of P22,000 had been deposited in a joint account which he had with
one of her maids. But he denied having taken advantage of her trust in order to secure the execution
of the contracts in question. As counterclaim he sought the recovery of P9,210.49 which he said she
owed him for advances.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this
agreement." It is claimed that this stipulation offends article 1308 of the Civil Code which provides
that "the contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them."
We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor
v. Uy Tieng Piao.1 We said in that case:

Wong's admission of the receipt of P22,000 and P3,000 was the cue for the filing of an amended
complaint. Thus on June 9, 1960, aside from the nullity of the contracts, the collection of various
amounts allegedly delivered on different occasions was sought. These amounts and the dates of their
delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957); P22,000
and P3,000 (as admitted in his answer). An accounting of the rentals from the Ongpin and Rizal
Avenue properties was also demanded.

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the cancellation
of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make
either the validity or the fulfillment of the contract dependent upon the will of the party to
whom is conceded the privilege of cancellation; for where the contracting parties have agreed
that such option shall exist, the exercise of the option is as much in the fulfillment of the
contract as any other act which may have been the subject of agreement. Indeed, the
cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment. 2

In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic Relations
Court, the Security Bank & Trust Co. was appointed guardian of the properties of Justina Santos, while
Ephraim G. Gochangco was appointed guardian of her person.

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee, at
any time before he erected any building on the land, might rescind the lease, can hardly be regarded
as a violation of article 1256 [now art. 1308] of the Civil Code."

In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by the
parties. He likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of P7,344.42
and P10,000, but contended that these amounts had been spent in accordance with the instructions of
Justina Santos; he expressed readiness to comply with any order that the court might make with
respect to the sums of P22,000 in the bank and P3,000 in his possession.

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of
mutuality, because of a difference in factual setting. In that case, the lessees argued that they could
occupy the premises as long as they paid the rent. This is of course untenable, for as this Court said,
"If this defense were to be allowed, so long as defendants elected to continue the lease by continuing
the payment of the rentals, the owner would never be able to discontinue it; conversely, although the
owner should desire the lease to continue the lessees could effectively thwart his purpose if they
should prefer to terminate the contract by the simple expedient of stopping payment of the rentals."
Here, in contrast, the right of the lessee to continue the lease or to terminate it is so circumscribed by
the term of the contract that it cannot be said that the continuance of the lease depends upon his will.
At any rate, even if no term had been fixed in the agreement, this case would at most justify the fixing
of a period5 but not the annulment of the contract.

The case was heard, after which the lower court rendered judgment as follows:
[A]ll the documents mentioned in the first cause of action, with the exception of the first which
is the lease contract of 15 November 1957, are declared null and void; Wong Heng is
condemned to pay unto plaintiff thru guardian of her property the sum of P55,554.25 with
legal interest from the date of the filing of the amended complaint; he is also ordered to pay
the sum of P3,120.00 for every month of his occupation as lessee under the document of lease
herein sustained, from 15 November 1959, and the moneys he has consigned since then shall
be imputed to that; costs against Wong Heng.
From this judgment both parties appealed directly to this Court. After the case was submitted for
decision, both parties died, Wong Heng on October 21, 1962 and Justina Santos on December 28,
1964. Wong was substituted by his wife, Lui She, the other defendant in this case, while Justina
Santos was substituted by the Philippine Banking Corporation.
Justina Santos maintained now reiterated by the Philippine Banking Corporation that the lease
contract (Plff Exh. 3) should have been annulled along with the four other contracts (Plff Exhs. 4-7)
because it lacks mutuality; because it included a portion which, at the time, was in custodia legis;
because the contract was obtained in violation of the fiduciary relations of the parties; because her
consent was obtained through undue influence, fraud and misrepresentation; and because the lease
contract, like the rest of the contracts, is absolutely simulated.

Nor is there merit in the claim that as the portion of the property formerly owned by the sister of
Justina Santos was still in the process of settlement in the probate court at the time it was leased, the
lease is invalid as to such portion. Justina Santos became the owner of the entire property upon the
death of her sister Lorenzo on September 22, 1957 by force of article 777 of the Civil Code. Hence,
when she leased the property on November 15, she did so already as owner thereof. As this Court
explained in upholding the sale made by an heir of a property under judicial administration:
That the land could not ordinarily be levied upon while in custodia legis does not mean that
one of the heirs may not sell the right, interest or participation which he has or might have in
the lands under administration. The ordinary execution of property in custodia legis is
prohibited in order to avoid interference with the possession by the court. But the sale made
by an heir of his share in an inheritance, subject to the result of the pending administration, in
no wise stands in the way of such administration. 6
It is next contended that the lease contract was obtained by Wong in violation of his fiduciary
relationship with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil Code,

which disqualifies "agents (from leasing) the property whose administration or sale may have been
entrusted to them." But Wong was never an agent of Justina Santos. The relationship of the parties,
although admittedly close and confidential, did not amount to an agency so as to bring the case within
the prohibition of the law.
Just the same, it is argued that Wong so completely dominated her life and affairs that the contracts
express not her will but only his. Counsel for Justina Santos cites the testimony of Atty. Tomas S.
Yumol who said that he prepared the lease contract on the basis of data given to him by Wong and
that she told him that "whatever Mr. Wong wants must be followed." 7
The testimony of Atty. Yumol cannot be read out of context in order to warrant a finding that Wong
practically dictated the terms of the contract. What this witness said was:
Q Did you explain carefully to your client, Doa Justina, the contents of this document before
she signed it?
A I explained to her each and every one of these conditions and I also told her these
conditions were quite onerous for her, I don't really know if I have expressed my opinion, but I
told her that we would rather not execute any contract anymore, but to hold it as it was
before, on a verbal month to month contract of lease.
Q But, she did not follow your advice, and she went with the contract just the same?
A She agreed first . . .

Wong might indeed have supplied the data which Atty. Yumol embodied in the lease contract, but to
say this is not to detract from the binding force of the contract. For the contract was fully explained to
Justina Santos by her own lawyer. One incident, related by the same witness, makes clear that she
voluntarily consented to the lease contract. This witness said that the original term fixed for the lease
was 99 years but that as he doubted the validity of a lease to an alien for that length of time, he tried
to persuade her to enter instead into a lease on a month-to-month basis. She was, however, firm and
unyielding. Instead of heeding the advice of the lawyer, she ordered him, "Just follow Mr. Wong
Heng."9 Recounting the incident, Atty. Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and her condition, she is a wealthy
woman, it is just natural when she said "This is what I want and this will be done." In
particular reference to this contract of lease, when I said "This is not proper," she said "You
just go ahead, you prepare that, I am the owner, and if there is any illegality, I am the only
one that can question the illegality."10
Atty. Yumol further testified that she signed the lease contract in the presence of her close friend,
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side. 11 Any of them could
have testified on the undue influence that Wong supposedly wielded over Justina Santos, but neither
of them was presented as a witness. The truth is that even after giving his client time to think the
matter over, the lawyer could not make her change her mind. This persuaded the lower court to
uphold the validity of the lease contract against the claim that it was procured through undue
influence.
Indeed, the charge of undue influence in this case rests on a mere inference 12 drawn from the fact that
Justina Santos could not read (as she was blind) and did not understand the English language in which
the contract is written, but that inference has been overcome by her own evidence.

Q Agreed what?
A Agreed with my objectives that it is really onerous and that I was really right, but after that,
I was called again by her and she told me to follow the wishes of Mr. Wong Heng.
xxx

xxx

xxx

Q So, as far as consent is concerned, you were satisfied that this document was perfectly
proper?
xxx

xxx

xxx

A Your Honor, if I have to express my personal opinion, I would say she is not, because, as I
said before, she told me "Whatever Mr. Wong wants must be followed." 8

Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of the
contracts in question, was given out of a mistaken sense of gratitude to Wong who, she was made to
believe, had saved her and her sister from a fire that destroyed their house during the liberation of
Manila. For while a witness claimed that the sisters were saved by other persons (the brothers
Edilberto and Mariano Sta. Ana) 13 it was Justina Santos herself who, according to her own witness,
Benjamin C. Alonzo, said "very emphatically" that she and her sister would have perished in the fire
had it not been for Wong. 14 Hence the recital in the deed of conditional option (Plff Exh. 7) that
"[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang magkapatid sa halos ay tiyak na
kamatayan", and the equally emphatic avowal of gratitude in the lease contract (Plff Exh. 3).
As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs. 4-7)
the consent of Justina Santos was given freely and voluntarily. As Atty. Alonzo, testifying for her,
said:
[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both. When we
had conferences, they used to tell me what the documents should contain. But, as I said, I
would always ask the old woman about them and invariably the old woman used to tell me:
"That's okay. It's all right."15
But the lower court set aside all the contracts, with the exception of the lease contract of November
15, 1957, on the ground that they are contrary to the expressed wish of Justina Santos and that their
considerations are fictitious. Wong stated in his deposition that he did not pay P360 a month for the

additional premises leased to him, because she did not want him to, but the trial court did not believe
him. Neither did it believe his statement that he paid P1,000 as consideration for each of the contracts
(namely, the option to buy the leased premises, the extension of the lease to 99 years, and the fixing
of the term of the option at 50 years), but that the amount was returned to him by her for
safekeeping. Instead, the court relied on the testimony of Atty. Alonzo in reaching the conclusion that
the contracts are void for want of consideration.
Atty. Alonzo declared that he saw no money paid at the time of the execution of the documents, but
his negative testimony does not rule out the possibility that the considerations were paid at some
other time as the contracts in fact recite. What is more, the consideration need not pass from one
party to the other at the time a contract is executed because the promise of one is the consideration
for the other.16
With respect to the lower court's finding that in all probability Justina Santos could not have intended
to part with her property while she was alive nor even to lease it in its entirety as her house was built
on it, suffice it to quote the testimony of her own witness and lawyer who prepared the contracts (Plff
Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death, according to her revelation to me, was to
see to it that these properties be enjoyed, even to own them, by Wong Heng because Doa
Justina told me that she did not have any relatives, near or far, and she considered Wong
Heng as a son and his children her grandchildren; especially her consolation in life was when
she would hear the children reciting prayers in Tagalog. 17
She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped
her much, and she told me to see to it that no one could disturb Wong Heng from those
properties. That is why we thought of the ninety-nine (99) years lease; we thought of
adoption, believing that thru adoption Wong Heng might acquire Filipino citizenship; being the
adopted child of a Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just quoted,
while dispelling doubt as to the intention of Justina Santos, at the same time gives the clue to what we
view as a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens.
"The illicit purpose then becomes the illegal causa"19 rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they
reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be
sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to
buy real property on condition that he is granted Philippine citizenship. As this Court said in Krivenko
v. Register of Deeds:20
[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the Constitution.
Should they desire to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which
the Filipino owner cannot sell or otherwise dispose of his property, 21 this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land ( jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to dispose of it ( jus disponendi) rights the sum total
of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use,
the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up
are consolidated in an alien. And yet this is just exactly what the parties in this case did within the
space of one year, with the result that Justina Santos' ownership of her property was reduced to a
hollow concept. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.
It does not follow from what has been said, however, that because the parties are in pari delicto they
will be left where they are, without relief. For one thing, the original parties who were guilty of a
violation of the fundamental charter have died and have since been substituted by their administrators
to whom it would be unjust to impute their guilt. 23 For another thing, and this is not only cogent but
also important, article 1416 of the Civil Code provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely prohibited, and the prohibition by law is
designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what
he has paid or delivered." The Constitutional provision that "Save in cases of hereditary succession, no
private agricultural land shall be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain in the Philippines" 24 is an
expression of public policy to conserve lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we have no choice. We are
construing the Constitution as it is and not as we may desire it to be. Perhaps the effect of our
construction is to preclude aliens admitted freely into the Philippines from owning sites where
they may build their homes. But if this is the solemn mandate of the Constitution, we will not
attempt to compromise it even in the name of amity or equity . . . .
For all the foregoing, we hold that under the Constitution aliens may not acquire private or
public agricultural lands, including residential lands, and, accordingly, judgment is affirmed,
without costs.25
That policy would be defeated and its continued violation sanctioned if, instead of setting the contracts
aside and ordering the restoration of the land to the estate of the deceased Justina Santos, this Court
should apply the general rule of pari delicto. To the extent that our ruling in this case conflicts with
that laid down in Rellosa v. Gaw Chee Hun 26 and subsequent similar cases, the latter must be
considered as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of Justina Santos, must be denied
for lack of merit.
And what of the various amounts which Wong received in trust from her? It appears that he kept two
classes of accounts, one pertaining to amount which she entrusted to him from time to time, and
another pertaining to rentals from the Ongpin property and from the Rizal Avenue property, which he
himself was leasing.

With respect to the first account, the evidence shows that he received P33,724.27 on November 8,
1957 (Plff Exh. 16); P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957
(Plff Exh. 14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19. He
claims, however, that he settled his accounts and that the last amount of P18,928.50 was in fact
payment to him of what in the liquidation was found to be due to him.
He made disbursements from this account to discharge Justina Santos' obligations for taxes,
attorneys' fees, funeral services and security guard services, but the checks (Def Exhs. 247-278)
drawn by him for this purpose amount to only P38,442.84. 27 Besides, if he had really settled his
accounts with her on August 26, 1959, we cannot understand why he still had P22,000 in the bank
and P3,000 in his possession, or a total of P25,000. In his answer, he offered to pay this amount if the
court so directed him. On these two grounds, therefore, his claim of liquidation and settlement of
accounts must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), there is a difference of
P31,564 which, added to the amount of P25,000, leaves a balance of P56,564.35 28 in favor of Justina
Santos.
As to the second account, the evidence shows that the monthly income from the Ongpin property until
its sale in Rizal Avenue July, 1959 was P1,000, and that from the Rizal Avenue property, of which
Wong was the lessee, was P3,120. Against this account the household expenses and disbursements
for the care of the 17 dogs and the salaries of the 8 maids of Justina Santos were charged. This
account is contained in a notebook (Def. Exh. 6) which shows a balance of P9,210.49 in favor of Wong.
But it is claimed that the rental from both the Ongpin and Rizal Avenue properties was more than
enough to pay for her monthly expenses and that, as a matter of fact, there should be a balance in
her favor. The lower court did not allow either party to recover against the other. Said the court:
[T]he documents bear the earmarks of genuineness; the trouble is that they were made only
by Francisco Wong and Antonia Matias, nick-named Toning, which was the way she signed
the loose sheets, and there is no clear proof that Doa Justina had authorized these two to act
for her in such liquidation; on the contrary if the result of that was a deficit as alleged and
sought to be there shown, of P9,210.49, that was not what Doa Justina apparently
understood for as the Court understands her statement to the Honorable Judge of the Juvenile
Court . . . the reason why she preferred to stay in her home was because there she did not
incur in any debts . . . this being the case, . . . the Court will not adjudicate in favor of Wong
Heng on his counterclaim; on the other hand, while it is claimed that the expenses were much
less than the rentals and there in fact should be a superavit, . . . this Court must concede that
daily expenses are not easy to compute, for this reason, the Court faced with the choice of the
two alternatives will choose the middle course which after all is permitted by the rules of proof,
Sec. 69, Rule 123 for in the ordinary course of things, a person will live within his income so
that the conclusion of the Court will be that there is neither deficit nor superavit and will let
the matter rest here.

Both parties on appeal reiterate their respective claims but we agree with the lower court that both
claims should be denied. Aside from the reasons given by the court, we think that the claim of Justina
Santos totalling P37,235, as rentals due to her after deducting various expenses, should be rejected
as the evidence is none too clear about the amounts spent by Wong for food 29 masses30 and salaries of
her maids.31 His claim for P9,210.49 must likewise be rejected as his averment of liquidation is belied
by his own admission that even as late as 1960 he still had P22,000 in the bank and P3,000 in his
possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land subjectmatter of the contracts is ordered returned to the estate of Justina Santos as represented by the
Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui She) is
ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest from the
date of the filing of the amended complaint; and the amounts consigned in court by Wong Heng shall
be applied to the payment of rental from November 15, 1959 until the premises shall have been
vacated by his heirs. Costs against the defendant-appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Angeles, JJ.,
concur.

Separate Opinions

FERNANDO, J., concurring:

With the able and well-written opinion of Justice Castro, I am in full agreement. The exposition of the
facts leaves nothing to be desired and the statement of the law is notable for its comprehensiveness
and clarity. This concurring opinion has been written solely to express what I consider to be the
unfortunate and deplorable consequences of applying the pari delicto concept, as was, to my mind,
indiscriminately done, to alien landholding declared illegal under the Krivenko doctrine in some past
decisions.
It is to be remembered that in Krivenko v. The Register of Deeds of Manila,1 this Court over strong
dissents held that residential and commercial lots may be considered agricultural within the meaning
of the constitutional provision prohibiting the transfer of any private agricultural land to individuals,
corporations or associations not qualified to acquire or hold lands of the public domain in the
Philippines save in cases of hereditary succession.
That provision of the Constitution took effect on November 15, 1935 when the Commonwealth
Government was established. The interpretation as set forth in the Krivenko decision was only handed
down on November 15, 1947. Prior to that date there were many who were of the opinion that the
phrase agricultural
land should
be
construed
strictly
and
not
be
made
to
cover residential and commercial lots. Acting on that belief, several transactions were entered into
transferring such lots to alien vendees by Filipino-vendors.

After the Krivenko decision, some Filipino vendors sought recovery of the lots in question on the
ground that the sales were null and void. No definite ruling was made by this Court until September of
1953, when on the 29th of said month, Rellosa v. Gaw Chee Hun,2 Bautista v. Uy Isabelo,3 Talento v.
Makiki,4 Caoile v. Chiao Peng5 were decided.

various aspects, with respect to particular relations, individual and corporate, and particular
conduct, private and official. Questions of rights claimed to have become vested, of status, of prior
determinations deemed to have finality and acted upon accordingly, of public policy in the light of the
nature both of the statute and of its previous application, demand examination."

Of the four decisions in September, 1953, the most extensive discussion of the question is found
in Rellosa v. Gaw Chee Hun, the opinion being penned by retired Justice Bautista Angelo with the
concurrence only of one Justice, Justice Labrador, also retired. Former Chief Justice Paras as well as
the former Justices Tuason and Montemayor concurred in the result. The necessary sixth vote for a
decision was given by the then Justice Bengzon, who had a two-paragraph concurring opinion
disagreeing with the main opinion as to the force to be accorded to the two cases, 6 therein cited.
There were two dissenting opinions by former Justices Pablo and Alex Reyes. The doctrine as
announced in the Rellosa case is that while the sale by a Filipino-vendor to an alien-vendee of a
residential or a commercial lot is null and void as held in the Krivenko case, still the Filipino-vendor
has no right to recover under a civil law doctrine, the parties being in pari delicto. The only remedy to
prevent this continuing violation of the Constitution which the decision impliedly sanctions by allowing
the alien vendees to retain the lots in question is either escheat or reversion. Thus: "By following
either of these remedies, or by approving an implementary law as above suggested, we can enforce
the fundamental policy of our Constitution regarding our natural resources without doing violence to
the principle of pari delicto."7

After the Krivenko decision, there is no doubt that continued possession by alien-vendee of property
acquired before its promulgation is violative of the Constitution. It is as if an act granting aliens the
right to acquire residential and commercial lots were annulled by the Supreme Court as contrary to
the provision of the Constitution prohibiting aliens from acquiring private agricultural land.

Were the parties really in pari delicto? Had the sale by and between Filipino-vendor and alien-vendee
occurred after the decision in the Krivenko case, then the above view would be correct that both
Filipino-vendor and alien-vendee could not be considered as innocent parties within the contemplation
of the law. Both of them should be held equally guilty of evasion of the Constitution.
Since, however, the sales in question took place prior to the Krivenko decision, at a time when the
assumption could be honestly entertained that there was no constitutional prohibition against the sale
of commercial or residential lots by Filipino-vendor to alien-vendee, in the absence of a definite
decision by the Supreme Court, it would not be doing violence to reason to free them from the
imputation of evading the Constitution. For evidently evasion implies at the very least knowledge of
what is being evaded. The new Civil Code expressly provides: "Mistakes upon a doubtful or difficult
question of law may be the basis of good faith."8
According to the Rellosa opinion, both parties are equally guilty of evasion of the Constitution, based
on the broader principle that "both parties are presumed to know the law." This statement that the
sales entered into prior to the Krivenko decision were at that time already vitiated by a guilty
knowledge of the parties may be too extreme a view. It appears to ignore a postulate of a
constitutional system, wherein the words of the Constitution acquire meaning through Supreme Court
adjudication.1awphl.nt
Reference may be made by way of analogy to a decision adjudging a statute void. Under the orthodox
theory of constitutional law, the act having been found unconstitutional was not a law, conferred no
rights, imposed no duty, afforded no protection. 9 As pointed out by former Chief Justice Hughes
though in Chicot County Drainage District v. Baxter State Bank:10 "It is quite clear, however, that such
broad statements as to the effect of a determination of unconstitutionality must be taken with
qualifications. The actual existence of a statute, prior to such a determination, is an operative fact and
may have consequences which cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of subsequent ruling as to invalidity may have to be considered in

The question then as now, therefore, was and is how to divest the alien of such property rights on
terms equitable to both parties. That question should be justly resolved in accordance with the
mandates of the Constitution not by a wholesale condemnation of both parties for entering into a
contract at a time when there was no ban as yet arising from the Krivenko decision, which could not
have been anticipated. Unfortunately, under the Rellosa case, it was assumed that the parties,
being in pari delicto, would be left in the situation in which they were, neither being in a position to
seek judicial redress.
Would it not have been more in consonance with the Constitution, if instead the decision compelled
the restitution of the property by the alien-vendee to the Filipino-vendor? Krivenko decision held in
clear, explicit and unambigous language that: "We are deciding the instant case under section 5 of
Article XIII of the Constitution which is more comprehensive and more absolute in the sense that it
prohibits the transfer to aliens of any private agricultural land including residential land whatever its
origin might have been . . . . This prohibition [Rep. Act No. 133] makes no distinction between private
lands that are strictly agricultural and private lands that are residential or commercial. The prohibition
embraces the sale of private lands of any kind in favor of aliens, which is again a clear implementation
and a legislative interpretation of the constitutional prohibition. . . . It is well to note at this juncture
that in the present case we have no choice. We are construing the Constitution as it is and not as we
may desire it to be. Perhaps the effect of our construction is to preclude aliens, admitted freely into
the Philippines, from owning sites where they may build their homes. But if this is the solemn
mandate of the Constitution, we will not attempt to compromise it even in the name of amity or
equity."11
Alien-vendee is therefore incapacitated or disqualified to acquire and hold real estate. That incapacity
and that disqualification should date from the adoption of the Constitution on November 15, 1935.
That incapacity and that disqualification, however, was made known to Filipino-vendor and to alienvendee only upon the promulgation of the Krivenko decision on November 15, 1947. Alien-vendee,
therefore, cannot be allowed to continue owning and exercising acts of ownership over said property,
when it is clearly included within the Constitutional prohibition. Alien-vendee should thus be made to
restore the property with its fruits and rents to Filipino-vendor, its previous owner, if it could be shown
that in the utmost good faith, he transferred his title over the same to alien-vendee, upon restitution
of the purchase price of course.
The Constitution bars alien-vendees from owning the property in question. By dismissing those suits,
the lots remained in alien hands. Notwithstanding the solution of escheat or reversion offered, they
are still at the moment of writing, for the most part in alien hands. There have been after almost
twenty years no proceedings for escheat or reversion.

Yet it is clear that an alien-vendee cannot consistently with the constitutional provision, as interpreted
in theKrivenko decision, continue owning and exercising acts of ownership over the real estate in
question. It ought to follow then, if such a continuing violation of the fundamental law is to be put an
end to, that the Filipino-vendor, who in good faith entered into, a contract with an incapacitated
person, transferring ownership of a piece of land after the Constitution went into full force and effect,
should, in the light of the ruling in the Krivenko case, be restored to the possession and ownership
thereof, where he has filed the appropriate case or proceeding. Any other construction would defeat
the ends and purposes not only of this particular provision in question but the rest of the Constitution
itself.
The Constitution frowns upon the title remaining in the alien-vendees. Restoration of the property
upon payment of price received by Filipino vendor or its reasonable equivalent as fixed by the court is
the answer. To give the constitutional provision full force and effect, in consonance with the dictates of
equity and justice, the restoration to Filipino-vendor upon the payment of a price fixed by the court is
the better remedy. He thought he could transfer the property to an alien and did so. After
the Krivenko case had made clear that he had no right to sell nor an alien-vendee to purchase the
property in question, the obvious solution would be for him to reacquire the same. That way the
Constitution would be given, as it ought to be given, respect and deference.
It may be said that it is too late at this stage to hope for such a solution, the Rellosa opinion, although
originally concurred in by only one justice, being too firmly imbedded. The writer however sees a
welcome sign in the adoption by the Court in this case of the concurring opinion of the then Justice,
later Chief Justice, Bengzon. Had it been followed then, the problem would not be still with us now.
Fortunately, it is never too late not even in constitutional adjudication.

From this judgment, appeal was taken to the then Court of Appeals which
lower court but modified the penalty imposed by sentencing her "to suffer
one (1) month and one (1) day of arresto mayor as minimum to one
of prision correccional as maximum, to indemnify the complainant in the
subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)

affirmed the decision of the

an indeterminate penalty of
(1) year and one (1) day
amount of P550.50 without

The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or
a contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman
Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the appellant went to the
house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the
proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo.
The appellant was to receive the overprice for which she could sell the tobacco. This
agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador
Bantug drew the document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda.
de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf
tobacco to be sold at Pl.30 per kilo. The proceed in the amount of
Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given
to her as soon as it was sold.

FIRST DIVISION
G.R. No. L-34338 November 21, 1984
LOURDES
VALERIO
vs.
PEOPLE OF THE PHILIPPINES, respondent.

LIM, petitioner,

RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an
imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months
as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment
in case of insolvency, and to pay the costs." (p. 14, Rollo)

This was signed by the appellant and witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing
a jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the
total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was
paid on three different times. Demands for the payment of the balance of the value of
the tobacco were made upon the appellant by Ayroso, and particularly by her sister,
Salud Bantug. Salud Bantug further testified that she had gone to the house of the
appellant several times, but the appellant often eluded her; and that the "camarin" the
appellant was empty. Although the appellant denied that demands for payment were
made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud
Bantug which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa
ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito at

tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay

man lang ako ng marami para hindi masiadong kahiyahiya sa iyo.
Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta
lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan
mo ay bukas ay dadalhan kita ng pera.

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which
provides that the courts may fix the duration of the obligation if it does not fix a period, does not
apply.

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil

nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak
na babayaran kita.

Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would
be paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as
follows:

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be
her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an
agreement that upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she would go to the extent of
going to Ayroso's house and take the tobacco with a jeep which she had brought if she
did not intend to make a profit out of the transaction. Certainly, if she was doing a
favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it
would not have been the appellant who would have gone to the house of Ayroso, but it
would have been Ayroso who would have gone to the house of the appellant and
deliver the tobacco to the appellant. (p. 19, Rollo)

Ludy
Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April
18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of
P240.00. As no further amount was paid, the complainant filed a complaint against the
appellant for estafa. (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to
wit:
1. Whether or not the Honorable Court of Appeals was legally right in holding that the
foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore,
immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against
the theory of the petitioner that the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was intended in which
case the only action that can be maintained is a petition to ask the court to fix the
duration thereof;
2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art.
1197 of the New Civil Code does not apply" as against the alternative theory of the
petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein
the duration of the period depends upon the will of the debtor in which case the only
action that can be maintained is a petition to ask the court to fix the duration of the
period; and
3. Whether or not the honorable Court of Appeals was legally right in holding that the
foregoing receipt is a contract of agency to sell as against the theory of the petitioner
that it is a contract of sale. (pp. 3-4, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given
to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the
petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the
tobacco if the same was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.
SO ORDERED.

EN BANC
G.R. No. L-22558

May 31, 1967

GREGORIO
ARANETA,
vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.
Araneta
and
Araneta
Rosauro Alvarez and Ernani Cruz Pao for respondent.

for

INC., petitioner,

petitioner.

REYES, J.B.L., J.:

Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R,
affirming with modification, an amendatory decision of the Court of First Instance of Manila, in its Civil
Case No. 36303, entitled "Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J. M. Tuason
& Co., Inc. and Gregorio Araneta, Inc., defendants."
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as
the Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July 28, 1950,
through Gregorio Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area of 43,034.4
square meters, more or less, for the sum of P430,514.00, to Philippine Sugar Estates Development
Co., Ltd. The parties stipulated, among in the contract of purchase and sale with mortgage, that the
buyer will
Build on the said parcel land the Sto. Domingo Church and Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will
be a block surrounded by streets on all four sides; and the street on the NE side shall be
named "Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo
Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing the streets, is
unable to finish the construction of the street in the Northeast side named (Sto. Domingo Avenue)
because a certain third-party, by the name of Manuel Abundo, who has been physically occupying a
middle part thereof, refused to vacate the same; hence, on May 7, 1958, Philippine Sugar Estates
Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to
compel the latter to comply with their obligation, as stipulated in the above-mentioned deed of sale,
and/or to pay damages in the event they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter
particularly setting up the principal defense that the action was premature since its obligation to
construct the streets in question was without a definite period which needs to he fixed first by the
court in a proper suit for that purpose before a complaint for specific performance will prosper.
The issues having been joined, the lower court proceeded with the trial, and upon its termination, it
dismissed plaintiff's complaint (in a decision dated May 31, 1960), upholding the defenses interposed
by defendant Gregorio Araneta, Inc.1wph1.t

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within
which defendants will comply with their obligation to construct the streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not
expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that
the evidence presented at the trial was insufficient to warrant the fixing of such a period.
On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of
such a period," issued an order granting plaintiff's motion for reconsideration and amending the
dispositive portion of the decision of May 31, 1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a period
of two (2) years from notice hereof, within which to comply with its obligation under the
contract, Annex "A".
Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which
motion, plaintiff opposed.
On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter
perfected its appeal Court of Appeals.
In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief
granted, i.e., fixing of a period, under the amendatory decision of July 16, 1960, was not justified by
the pleadings and not supported by the facts submitted at the trial of the case in the court below and
that the relief granted in effect allowed a change of theory after the submission of the case for
decision.
Ruling on the above contention, the appellate court declared that the fixing of a period was within the
pleadings and that there was no true change of theory after the submission of the case for decision
since defendant-appellant Gregorio Araneta, Inc. itself squarely placed said issue by alleging in
paragraph 7 of the affirmative defenses contained in its answer which reads
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a reasonable
time within which to comply with its obligations to construct and complete the streets on the
NE, NW and SW sides of the lot in question; that under the circumstances, said reasonable
time has not elapsed;
Disposing of the other issues raised by appellant which were ruled as not meritorious and which are
not decisive in the resolution of the legal issues posed in the instant appeal before us, said appellate
court rendered its decision dated December 27, 1963, the dispositive part of which reads
IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given
two (2) years from the date of finality of this decision to comply with the obligation to

construct streets on the NE, NW and SW sides of the land sold to plaintiff so that the same
would be a block surrounded by streets on all four sides.
Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc.
resorted to a petition for review by certiorari to this Court. We gave it due course.
We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of
First Instance is legally untenable. The fixing of a period by the courts under Article 1197 of the Civil
Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that the contract with respondent Philippine
Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within
which to comply with its obligation to construct and complete the streets." Neither of the courts below
seems to have noticed that, on the hypothesis stated, what the answer put in issue was not whether
the court should fix the time of performance, but whether or not the parties agreed that the petitioner
should have reasonable time to perform its part of the bargain. If the contract so provided, then there
was a period fixed, a "reasonable time;" and all that the court should have done was to determine if
that reasonable time had already elapsed when suit was filed if it had passed, then the court should
declare that petitioner had breached the contract, as averred in the complaint, and fix the resulting
damages. On the other hand, if the reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature. But in no case can it be logically held that under the
plea above quoted, the intervention of the court to fix the period for performance was warranted, for
Article 1197 is precisely predicated on the absence of any period fixed by the parties.
Even on the assumption that the court should have found that no reasonable time or no period at all
had been fixed (and the trial court's amended decision nowhere declared any such fact) still, the
complaint not having sought that the Court should set a period, the court could not proceed to do so
unless the complaint in as first amended; for the original decision is clear that the complaint
proceeded on the theory that the period for performance had already elapsed, that the contract had
been breached and defendant was already answerable in damages.
Granting, however, that it lay within the Court's power to fix the period of performance, still the
amended decision is defective in that no basis is stated to support the conclusion that the period
should be set at two years after finality of the judgment. The list paragraph of Article 1197 is clear
that the period can not be set arbitrarily. The law expressly prescribes that
the Court shall determine such period as may under the circumstances been probably
contemplated by the parties.

It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must
first determine that "the obligation does not fix a period" (or that the period is made to depend upon
the will of the debtor)," but from the nature and the circumstances it can be inferred that a period was
intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to
the second step, and decide what period was "probably contemplated by the parties" (Do., par. 3). So
that, ultimately, the Court can not fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended. As the record stands,
the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no
circumstances are mentioned to support it. Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract shows that the parties were fully aware
that the land described therein was occupied by squatters, because the fact is expressly mentioned
therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must resort to legal processes in evicting the
squatters, they must have realized that the duration of the suits to be brought would not be under
their control nor could the same be determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would render the date of performance
indefinite. Yet, the circumstances admit no other reasonable view; and this very indefiniteness is what
explains why the agreement did not specify any exact periods or dates of performance.
It follows that there is no justification in law for the setting the date of performance at any other time
than that of the eviction of the squatters occupying the land in question; and in not so holding, both
the trial Court and the Court of Appeals committed reversible error. It is not denied that the case
against one of the squatters, Abundo, was still pending in the Court of Appeals when its decision in
this case was rendered.
In view of the foregoing, the decision appealed from is reversed, and the time for the performance of
the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on
affected areas are finally evicted therefrom.
Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.
Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Sanchez and Castro, JJ., concur.
FIRST DIVISION

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the
proven facts precisely warrant the fixing of such a period," a statement manifestly insufficient to
explain how the two period given to petitioner herein was arrived at.

G.R. No. L-55480 June 30, 1987

PACIFICA
vs.

MILLARE, petitioner,

HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of Instance of Abra,
Second Judicial District, Branch I, ANTONIO CO and ELSA CO, respondents.

FELICIANO, J.:
On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as
lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written agreement,
which was scheduled to expire on 31 May 1980, the lessor-petitioner agreed to rent out to thelessee
at a monthly rate of P350.00 the "People's Restaurant", a commercial establishment located at the
corner of McKinley and Pratt Streets in Bangued, Abra.
The present dispute arose from events which transpired during the months of May and July in 1980.
According to the Co spouses, sometime during the last week of May 1980, the lessor informed them
that they could continue leasing the People's Restaurant so long as they were amenable to paying
creased rentals of P1,200.00 a month. In response, a counteroffer of P700.00 a month was made by
the Co spouses. At this point, the lessor allegedly stated that the amount of monthly rentals could be
resolved at a later time since "the matter is simple among us", which alleged remark was supposedly
taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to
continue occupying the subject premises and to forego their search for a substitute place to rent. 2 In
contrast, the lessor flatly denied ever having considered, much less offered, a renewal of the Contract
of Lease.
The variance in versions notwithstanding, the record shows that on 22 July 1980, Mrs. Millare wrote
the Co spouses requesting them to vacate the leased premises as she had no intention of renewing
the Contract of Lease which had, in the meantime, already expirecl. 3 In reply, the Co spouses
reiterated their unwillingness to pay the Pl,200.00 monthly rentals supposedly sought bv Mrs. Millare
which they considered "highly excessive, oppressive and contrary to existing laws". They also signified
their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to accept their
counter-offer. 4 Another letter of demand from Mrs. Millare was received on 28 July 1980 by the Co
spouses, who responded by depositing the rentals for June and July (at 700.00 a month) in court.
On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and filed a
Complaint 5 (docketed as Civil Case No. 1434) with the then Court of First Instance of Abra against
Mrs. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate of
P700.00 a nionth and for a period of ten years, (b) ordering the defendant to collect the sum of
P1,400.00 deposited by plaintiffs with the court, and (c) ordering the defendant to pay damages in the
amount of P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare filed an ejectment
case against the Co spouses in the Municipal Court of Bangued, Abra, docketed as Civil Case No. 661.
The spouses Co, defendants therein, sut)sequently set up lis pendens as a Civil Case No. 661. The
spouses Co, defendants therein, subsequently set up lis pendens as a defense against the complaint
for ejectment.

Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus Motion to Dismiss 6 rounded
on (a) lack of cause of action due to plaintiffs' failure to establish a valid renewal of the Contract of
Lease, and (b) lack of jurisdiction by the trial court over the complaint for failure of plaintiffs to secure
a certification from the Lupong Tagapayapa of the barangay wherein both disputants reside attesting
that no amicable settlement between them had been reached despite efforts to arrive at one, as
required by Section 6 of Presidential Decree No. 1508. The Co spouses opposed the motion to
dismiss. 7
In an Order dated 15 October 1980, respondent judge denied the motion to dismiss and ordered the
renewal of the Contract of Lease. Furthermore plaintiffs were allowed to deposit all accruing monthly
rentals in court, while defendant Millare was directed to submit her answer to the complaint. 8 A
motion for reconsideration 9 was subsequently filed which, however, was likewise denied. 10 Hence,
on 13 November 1980, Mrs. Millare filed the instant Petition for Certiorari, Prohibition and Mandamus,
seeking injunctive relief from the abovementioned orders. This Court issued a temporary restraining
order on 21 November 1980 enjoining respondent, judge from conducting further proceedings in Civil
Case No. 1434. 11 Apparently, before the temporary restraining order could be served on the
respondent judge, he rendered a "Judgment by Default" dated 26 November 1980 ordering the
renewal of the lease contract for a term of 5 years counted from the expiration date of the original
lease contract, and fixing monthly rentals thereunder at P700.00 a month, payable in arrears. On18
March 1981, this Court gave due course to the Petition for Certiorari, Prohibition and Mandamus. 12
Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over
Civil Case No. 1434; and (2) whether or not private respondents have a valid cause of action against
petitioner.
Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though for
reasons different from those cited by the respondent judge. 13 We would note firstly that the
conciliation procedure required under P.D. 1508 is not a jurisdictional requirement in the sense that
failure to have prior recourse to such procedure would not deprive a court of its jurisdiction either over
the subject matter or over the person of the defendant.14 Secondly, the acord shows that two
complaints were submitted to the barangay authorities for conciliation one by petitioner for
ejectment and the other by private respondents for renewal of the Contract of Lease. It appears
further that both complaints were, in fact, heard by the Lupong Tagapayapa in the afternoon of 30
August 1980. After attempts at conciliation had proven fruitless, Certifications to File Action
authorizing the parties to pursue their respective claims in court were then issued at 5:20 p.m. of that
same aftemoon, as attested to by the Barangay Captain in a Certification presented in evidence by
petitioner herself. 15
Petitioner would, nonetheless, assail the proceedings in the trial court on a technicaety, i.e., private
respondents allegedly filed their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty
minutes before the issuance of the requisite certification by the Lupng Tagapayapa. The defect in
procedure admittedly initially present at that particular moment when private respondents first filed
the complaint in the trial court, was cured by the subsequent issuance of the Certifications to File

Action by the barangay Lupong Tagapayapa Such certifications in any event constituted substantial
comphance with the requirement of P.D. 1508.
We turn to the second issue, that is, whether or not the complaint in Civil Case No. 1434 filed by the
respondent Co spouses claiming renewal of the contract of lease stated a valid cause of action.
Paragraph 13 of the Contract of Lease reads as follows:
13. This contract of lease is subject to the laws and regulations ofthe goverrunent; and
that this contract of lease may be renewed after a period of five (5) years under the
terms and conditions as will be mutually agreed upon by the parties at the time of
renewal; ... (Emphasis supplied.)
The respondent judge, in his Answer and Comment to the Petition, urges that under paragraph 13
quoted above.
there was already a consummated and finished mutual agreement of the parties to
renew the contract of lease after five years; what is only left unsettled between the
parties to the contract of lease is the amount of the monthly rental; the lessor insists
Pl,200 a month, while the lessee is begging P700 a month which doubled the P350
monthly rental under the original contract .... In short, the lease contract has never
expired because paragraph 13 thereof had expressly mandated that it is
renewable. ... 16
In the "Judgment by Default" he rendered, the respondent Judge elaborated his views obviously
highly emotional in character in the following extraordinary tatements:
However, it is now the negative posture of the defendant-lessor to block, reject and
refuse to renew said lease contract. It is the defendant-lessor's assertion and position
that she can at the mere click of her fingers, just throw-out the plaintiffs-lessees from
the leased premises and any time after the original term of the lease contract had
already expired; This negative position of the defendantlessor, to the mind of this
Court does not conform to the principles and correct application of the philosophy
underlying the law of lease; for indeed, the law of lease is impressed with public
interest, social justice and equity; reason for which, this Court cannot sanction lot
owner's business and commercial speculations by allowing them with "unbridled
discretion" to raise rentals even to the extent of "extraordinary gargantuan
proportions, and calculated to unreasonably and unjustly eject the helpless lessee
because he cannot afford said inflated monthly rental and thereby said lessee is
placed without any alternative, except to surrender and vacate the premises
mediately,-" Many business establishments would be closed and the public would
directly suffer the direct consequences; Nonetheless, this is not the correct concept or
perspective the law of lease, that is, to place the lessee always at the mercy of the
lessor's "Merchant of Venice" and to agit the latter's personal whims and caprices; the

defendant-lessor's hostile attitude by imposing upon the lessee herein

an "unreasonable and extraordinary gargantuan monthly rental of P1,200.00", to the
mind of this Court, is "fly-by night unjust enrichment" at the expense of said lessees;
but, no Man should unjustly enrich himself at the expense of another; under these
facts and circumstances surrounding this case, the action therefore to renew the lease
contract! is "tenable" because it falls squarely within the coverage and command of
Articles 1197 and 1670 of the New Civil Code, to wit:
xxx xxx xxx
The term "to be renewed" as expressly stipulated by the herein parties in the original
contract of lease means that the lease may be renewed for another term of five (5)
years; its equivalent to a promise made by the lessor to the lessee, and as a unilateral
stipulation, obliges the lessor to fulfill her promise; of course the lessor is free to
comply and honor her commitment or back-out from her promise to renew the lease
contract; but, once expressly stipulated, the lessor shall not be allowed to evade or
violate the obligation to renew the lease because, certainly, the lessor may be held
hable for damages caused to the lessee as a consequence of the unjustifiable
termination of the lease or renewal of the same; In other words, the lessor is guilty of
breach of contract: Since the original lease was fixed for five (5) years, it follows,
therefore, that the lease contract is renewable for another five (5) years and the
lessee is not required before hand to give express notice of this fact to the lessor
because it was expressly stipulated in the original lease contract to be renewed;
Wherefore, the bare refusal of the lessor to renew the lease contract unless the
monthly rental is P1,200.00 is contrary to law, morals, good customs, public policy,
justice and equity because no one should unjustly enrich herself at the expense of
another. Article 1197 and 1670 of the New Civil Code must therefore govern the case
at bar and whereby this Court is authorized to fix the period thereof by ordering the
renewal of the lease contract to another fixed term of five (5) years. 17
Clearly, the respondent judge's grasp of both the law and the Enghsh language is tenuous at best. We
are otherwise unable to comprehend how he arrived at the reading set forth above. Paragraph 13 of
the Contract of Lease can only mean that the lessor and lessee may agree to renew the contract upon
their reaching agreement on the terms and conditions to be embodied in such renewal contract.
Failure to reach agreement on the terms and conditions of the renewal contract will of course prevent
the contract from being renewed at all. In the instant case, the lessor and the lessee conspicuously
failed to reach agreement both on the amount of the rental to be payable during the renewal term,
and on the term of the renewed contract.
The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the "Judgment by
Default" by which he ordered the renewal of the lease for another term of five years and fixed monthly
rentals thereunder at P700.00 a month. Article 1197 of the Civil Code provides as follows:

If the obligation does not fix a period, but from its nature and the circumstances it can
be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the
debtor.

It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in
fact. Save in the limited and exceptional situations envisaged inArticles ll97 and 1670 of the Civil
Code, which do not obtain here, courts have no authority to prescribe the terms and conditions of a
contract for the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine Long
Distance Telephone,Co., 18
[P]arties cannot be coerced to enter into a contract where no agreement is had
between them as to the principal terms and conditions of the contract. Freedom to
stipulate such terms and conditions is of the essence of our contractual system, and by
express provision of the statute, a contract may be annulled if tainted by violence,
intimidation or undue influence (Article 1306, 1336, 1337, Civil Code of the
Philippines).

In every case, the courts shall determine such period as may, under the
circumstances, have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them. (Emphasis supplied.)
The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an
original period of five years, which had expired. It is also clear from paragraph 13 of the Contract of
Lease that the parties reserved to themselves the faculty of agreeing upon the period of the renewal
contract. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the
renewal period was not left to the wiu of the lessee alone, but rather to the will of both the lessor and
the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly exists. Here,
the contract was not renewed at all, there was in fact no contract at all the period of which could have
been fixed.
Article 1670 of the Civil Code reads thus:
If at the end of the contract the lessee should continue enjoying the thing left for 15
days with the acquiescence of the lessor and unless a notice to the contrary by either
party has previously been given. It is understood that there is an implied new lease,
not for the period of the original contract but for the time established in Articles 1682
and 1687. The ther terms of the original contract shall be revived. (Emphasis suplied.)
The respondents themselves, public and private, do not pretend that the continued occupancy of the
leased premises after 31 May 1980, the date of expiration of the contract, was with the acquiescence
of the lessor. Even if it be assumed that tacite reconduccion had occurred, the implied new lease could
not possibly have a period of five years, but rather would have been a month-to-month lease since the
rentals (under the original contract) were payable on a monthly basis. At the latest, an implied new
lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands
served by the petitioner upon the private respondents to vacate the previously leased premises.

Contractual terms and conditions created by a court for two parties are a contradiction in terms. If
they are imposed by a judge who draws upon his own private notions of what morals, good customs,
justice, equity and public policy" demand, the resulting "agreement" cannot, by definition, be
consensual or contractual in nature. It would also follow that such coerced terms and conditions
cannot be the law as between the parties themselves. Contracts spring from the volition of the parties.
That volition cannot be supplied by a judge and a judge who pretends to do so, acts tyrannically,
arbitrarily and in excess of his jurisdiction. 19
WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is granted. The Orders of the
respondent judge in Civil Case No. 1434 dated 26 September 1980 (denying petitioner's motion to
dismiss) and 4 November 1980 (denying petitioner's motion for reconsideration), and the "Judgment
by Default" rendered by the respondent judge dated 26 November 1980, are hereby annulled and set
aside and Civil Case No. 1434 is hereby dismissed. The temporary restraining order dated 21
November 1980 issued by this ourt, is hereby made permanent. No pronouncement as to costs.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ., concur.