G.R. No.
181206 October 9, 2009 By Decision of May 28, 2003, 7 the HLURB Arbiter dismissed Tansecos complaint for lack of cause of
MEGAWORLD GLOBUS ASIA, INC., Petitioner,
vs.
MILA S. TANSECO, Respondent.
DECISION
CARPIO MORALES, J.:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco
(Tanseco) entered into a Contract to Buy and Sell 1 a 224 square-meter (more or less) condominium unit
at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee
of P100,000, orP4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50
through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and
(3) the balance of P2,520,305.63 onOctober 31, 1998, the stipulated delivery date of the unit; provided
that if the construction is completed earlier, Tanseco would pay the balance within seven days from
receipt of a notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:
4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s herein
purchased shall be completed and delivered not later than October 31, 1998 with additional grace
period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire,
earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances,
government and economic controls making it, among others, impossible or difficult to obtain the
necessary materials, acts of third person, or any other cause or conditions beyond the control of the
SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly
without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the
right to withdraw from this transaction and refund to the BUYER without interest the amounts received
from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire,
storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other
reasons beyond its control, the Project may not be completed or it can only be completed at a financial
loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the
SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63
pending delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period
on October 31, 1998 or April 30, 1999, the last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover),
informed Tanseco that the unit was ready for inspection preparatory to delivery.3 Tanseco replied
through counsel, by letter of May 6, 2002, that in view of Megaworlds failure to deliver the unit on time,
she was demanding the return of P14,281,731.70 representing the total installment payment she had
made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period.
Tanseco pointed out that none of the excepted causes of delay existed.4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use
Regulatory Boards (HLURB) Expanded National Capital Region Field Office a complaint against
Megaworld for rescission of contract, refund of payment, and damages. 5
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its
control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial
demand for delivery before receipt of the notice of turnover.6
action, finding that Megaworld had effected delivery by the notice of turnover before Tanseco made a
demand. Tanseco was thereupon ordered to pay Megaworld the balance of the purchase price,
plus P25,000 as moral damages,P25,000 as exemplary damages, and P25,000 as attorneys fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28,
2003,8 sustained the HLURB Arbiters Decision on the ground of laches for failure to demand rescission
when the right thereto accrued. It deleted the award of damages, however. Tansecos Motion for
Reconsideration having been denied,9 she appealed to the Office of the President which dismissed the
appeal by Decision of April 28, 2006 10 for failure to show that the findings of the HLURB were tainted
with grave abuse of discretion. Her Motion for Reconsideration having been denied by Resolution dated
August 30, 2006,11 Tanseco filed a Petition for Review under Rule 43 with the Court of Appeals. 12
By Decision of September 28, 2007,13 the appellate court granted Tansecos petition, disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003
decision of the HLURB Field Office, the November 28, 2003 decision of the HLURB Board of
Commissioners in HLURB Case No. REM-A-030711-0162, the April 28, 2006 Decision and August 30,
2006 Resolution of the Office of the President in O.P. Case No. 05-I-318, are
hereby REVERSED and SET ASIDE and a new one entered: (1) RESCINDING, as prayed for by
TANSECO, the aggrieved party, the contract to buy and sell; (2) DIRECTING MEGAWORLD TO
PAY TANSECO the amount she had paid totaling P14,281,731.70 with Twelve (12%) Percent interest
per annum from October 31, 1998; (3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by
way of exemplary damages; (4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as
attorneys fees; and (5)ORDERING MEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in
the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is
needed to put the obligor in default if the contract, as in the herein parties contract, states the date
when the obligation should be performed; that time was of the essence because Tanseco relied on
Megaworlds promise of timely delivery when she agreed to part with her money; that the delay should
be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April
30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as
the right to choose the remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of
Megaworld in forcing her to accept its long-delayed delivery; and attorneys fees, she having been
compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by Resolution of January 8, 2008, 14 Megaworld filed
the present Petition for Review on Certiorari, echoing its position before the HLURB, adding that
Tanseco had not shown any basis for the award of damages and attorneys fees.15
Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad faith which
became evident when it insisted on making the delivery despite the long delay, 16 insisted that she
deserved the award of damages and attorneys fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver
the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to
pay the balance of the purchase price at or about the time of delivery on the part of Tanseco.
Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her
obligation to pay the balance of the purchase price. Megaworld having failed to comply with its
obligation under the contract, it is liable therefor.17
That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not
abate her cause. For demand would have been useless, Megaworld admittedly having failed in its
obligation to deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.18
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control
of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements, as well as business
risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday
occurrence, hence, not an instance of caso fortuito. 19 Megaworlds excuse for its delay does not thus
lie.
As for Megaworlds argument that Tansecos claim is considered barred by laches on account of her
belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by
equitable considerations.20 It bears noting that Tanseco religiously paid all the installments due up to
January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A
circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco.
Pursuant to Section 23 of Presidential Decree No. 95721 which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer, desists from further payment due
to the failure of the owner or developer to develop the subdivision or condominium project according to
the approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid includingamortization interests but
excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring
supplied),
Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld.
While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be
6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the
time this judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court
of Appeals.22
The award of P200,000 attorneys fees and of costs of suit is in order too, the parties having stipulated
in the Contract to Buy and Sell that these shall be borne by the losing party in a suit based
thereon,23 not to mention that Tanseco was compelled to retain the services of counsel to protect her
interest. And so is the award of exemplary damages. With pre-selling ventures mushrooming in the
metropolis, there is an increasing need to correct the insidious practice of real estate companies of
proffering all sorts of empty promises to entice innocent buyers and ensure the profitability of their
projects.
The Court finds the appellate courts award of P200,000 as exemplary damages excessive, however.
Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a
deterrent against or as a negative incentive to curb socially deleterious actions. 24 The Court finds
that P100,000 is reasonable in this case.
Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell, the
suspensive condition of full payment of the purchase price not having occurred to trigger the obligation
to convey title,cancellation, not rescission, of the contract is thus the correct remedy in the premises.26
WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED
with MODIFICATION.
As modified, the dispositive portion of the Decision reads:
The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld
Globus Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount of P14,281,731.70, to
bear 6% interest per annum starting May 6, 2002 and 12% interest per annum from the time the
judgment becomes final and executory; and to pay P200,000 attorneys fees, P100,000 exemplary
damages, and costs of suit.
Costs against petitioner.
SO ORDERED.
G.R. No. 95897 December 14, 1999
FLORENCIA T. HUIBONHOA, petitioner,
vs.
COURT OF APPEALS, Spouses Rufina G. Lim and ANTHONY LIM, LORETA GOJOCCO CHUA
and Spouses SEVERINO and PRISCILLA GOJOCCO, respondents.
G.R. No. 102604 December 14, 1999
SEVERINO GOJOCCO and LORETA GOJOCCO CHUA, petitioners,
vs.
COURT OF APPEALS, HON. HERMOGENES R. LIWAG, as Judge of the RTC of Manila Branch 55
and FLORENCIA HUIBONHOA, respondents.
PURISIMA J.:
These two petitions for review on certiorari under Rule 45 of the Rules of Court seek the reversal of the
Decisions of the Court of Appeals in CA-G.R. CV No. 16575 and CA-G.R. SP No. 24654 which
affirmed, respectively, the decision of Branch 148 of the Regional Trial Court of Makati City, dismissing
the complaint for reformation of contract, and the decision of Branch 55 of the Regional Trial Court of
Manila, reversing that of Branch 13 of the Metropolitan Trial Court of Manila, which favorably acted in
the ejectment case. Both petitions involve the same parties.
Culled from the records on hand, the facts giving rise to the two cases are as follows:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with siblings
Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that Florencia T.
Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at Ilaya Street,
Binondo, Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer Certificates of Title
Nos. 76098, 80728 and 155450, all in their (Gojoccos') names.
On June 30, 1983, pursuant to the said memorandum of agreement, the parties inked a contract of
lease of the same three lots for a period of fifteen (15) years commencing on July 1, 1983 and
renewable upon agreement of the parties. Subject contract was to enable the lessee, Florencia T.
Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof deck, according
to plans and specifications approved by the City Engineer's Office." The parties agreed that the lessee
could let/sublease the building and/or its spaces to interested parties under such terms and conditions
as the lessee would determine and that all amounts collected as rents or income from the property
would belong exclusively to the lessee. The lessee undertook to complete construction of the building
"within eight (8) months from the date of the execution of the contract of lease." The contract further
provided as follows:
5. Good will Money and Rate of Monthly Rental: Upon the signing of this Contract of Lease, LESSEE
shall pay to each of the LESSOR the sum of P300,000.00 each or a total sum of P900,000.00, as
goodwill money.
LESSEE shall pay to each of the LESSOR the sum of P15,000.00 each or a total amount of
P45,000.00 as monthly rental for the leased premises, within the first five (5) days of each calendar
month, at the office of the LESSOR or their authorized agent; Provided, however, that LESSEE's
obligation to pay the rental shall start only upon completion of the building, but if it is not completed
within eight (8) months from date hereof as provided for in par. 4 above, the monthly rental shall already
accrue and shall be paid by LESSEE to LESSOR. In other words, during the period of construction, no
monthly rental shall be collected from LESSEE; Provided, Finally, that the monthly rental shall be
adjusted/increased upon the corresponding increase in the rental of sub-leasees (sic) using the
percentage increase in the totality of rentals of the sub-leasees (sic) as basis for the percentage
increase of monthly rental that LESSEE will pay to LESSOR.
The parties also agreed that upon the termination of the lease, the ownership and title to the building
thus constructed on the said lots would automatically transfer to the lessor, even without any
implementing document therefor. Real estate taxes on the land would be borne by the lessor while that
on the building, by the lessee, but the latter was authorized to advance the money needed to meet the
lessors' obligations such as the payment of real estate taxes on their lots. The lessors would deduct
from the monthly rental due all such advances made by the lessee.
After the execution of the contract, the Gojoccos executed a power of attorney granting Huibonhoa the
authority to obtain "credit facilities" in order that the three lots could be mortgaged for a limited one-year
period from July 1983. 1 Hence, on September 12, 1983, Huibonhoa obtained from China Banking
Corporation "credit facilities" not exceeding One Million (P1,000.000.00) Pesos. Simultaneously, she
mortgaged the three lots to the creditor bank. 2 Fifteen days later or on September 27, 1983, to be
precise, Huibonhoa signed a contract amending the real estate mortgage in favor of China Banking
Corporation whereby the "credit facilities" were increased to the principal sum of Three Million
(P3,000,000.00) Pesos. 3
During the construction of the building which later became known as Poulex Merchandise
Center, 4 former Senator Benigno Aquino, Jr. was assassinated. The incident must have affected the
country's political and economic stability. The consequent hoarding of construction materials and
increase in interest rates allegedly affected adversely the construction of the building such that
Huibonhoa failed to complete the same within the stipulated eight-month period from July 1, 1983.
Projected to be finished on February 29, 1984, the construction was completed only in September 1984
or seven (7) months later.
Under the contract, Huibonhoa was supposed to start paying rental in March 1984 but she failed to do
so. Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the payment of
rental arrearages and, for her to vacate the leased premises. On December 19, 1984, lessors sent
lessee a final letter of demand to pay the rental arrearages and to vacate the leased premises. The
former also notified the latter of their intention to terminate the contract of lease. 5
However, on January 3, 1985, Huibonhoa brought an action for reformation of contract before Branch
148 of the Regional Trial Court in Makati. Docketed as Civil Case No. 9402, the Complaint alleged that
although there was a meeting of the minds between the parties on the lease contract, their true
intention as to when the monthly rental would accrue was not therein expressed due to mistake or
accident. She (lessee) alleged that the Gojoccos had erroneously considered the first accrual date of
the rents to be March 1984 when their true intention was that during the entire period of actual
construction of the building, no rents would accrue. Thus, according to Huibonhoa, the first rent would
have been due only in October 1984. Moreover the assassination of former Senator Benigno Aquino,
Jr., an unforeseen event, caused the country's economy to turn from bad to worse and as a result, the
prices of commodities like construction materials so increased that the building worth Six Million pesos
escalated to "something like 11 to 12 million pesos." However, she averred that by reason of mistake or
accident, the lease contract failed to provide that should an unforeseen event dramatically increase the
cost of construction, the monthly rental would be reduced and the term of the lease would be extended
for such fair duration as may be fair and equitable to both the lessors and the lessee.
Huibonhoa then prayed that the contract of lease be reformed so as to reflect the true intention of the
parties; that its terms be novated so that the accrual of rents should be computed from October 1984;
that the monthly rent of P45,000.00 be equitably reduced to P30,000.00, and the term of the lease be
extended by five (5) years. 6
Eleven days later or on January 14, 1985, to be exact, the Gojoccos filed Civil Case No. 106097
against Huibonhoa for "cancellation of lease, ejectment and collection" with the Metropolitan Trial Court
of Manila. They theorized that despite the expiration of the 8-month construction period, Huibonhoa
failed to pay the rents that had accrued since March 1, 1984, their verbal demands therefor
notwithstanding; that, in their letter of December 19, 1984, they had notified Huibonhoa of their intention
to "terminate and cancel the lease for violation of its terms" and that they demanded from her the
"restitution of the land in question" and the payment of all rentals due thereunder; that Huibonhoa
refused to pay the rentals in bad faith because she had "sublet the stalls, bodegas and offices to
numerous tenants and/or stallholders" from whom she had collected "goodwill money and exorbitant
rentals even prior to the completion of the building or as of March 1984;" that she was about to
sublease the vacant spaces in the building; that she was able to finish construction of the building
"without utilizing her own capital or investment" on account of the mortgages of their land in the amount
of P3,700,000 (sic); that because the mortgage indebtedness with China Banking Corporation had
remained outstanding and unpaid, they had revoked the power of attorney in Huibonhoa's favor on
December 21, 1984, and that, because Huibonhoa was about to depart from the Philippines, the rentals
due and owing from the leased premises should be held to answer for their claim by virtue of a writ of
attachment.
The Gojoccos prayed that Huibonhoa and all persons claiming rights under her be ordered to vacate
the leased premises, to surrender to them actual and physical possession thereof and to pay the rents
due and unpaid at the agreed rate of P45,000.00 a month from March 1984 to January 1985, with legal
interest thereon. They also prayed that Huibonhua be ordered to pay the fair rental value of P60,000.00
a month "beginning February 5, 1985 and every 5th of the month until the premises shall be actually
vacated and restored" to them and that, "considering the nature of the action," the Rules on Summary
Procedure be applied to prevent further losses, damages and expenses on their part. 7
Meanwhile, in Civil Case No. 9402, the Gojoccos submitted an answer to the complaint for reformation
of contract; asserting that the true intention of the parties was to obligate Huibonhoa to pay rents
immediately upon the expiration of the maximum period of eight (8) months from the execution of the
lease contract, which intention was meant to avoid a situation wherein Huibonhoa would deliberately
delay the completion of the building within the 8-month period to elude payment of rental starting March
1984. They also claimed that Huibonhoa instituted the case in anticipation of the ejectment suit they
would file against her; that she was estopped from questioning the enforceability of the lease contract
after having received monetary benefits as a result of her utilization of the premises to her sole profit
and advantage; that the financial reverses she suffered after the assassination of Senator Benigno
Aquino, Jr. could not be considered a fortuitous event that would justify the reduction of the monthly
rental and extension of the contract of lease for five years; and that the "principle of contract of
adhesion" in interpreting the lease contract should be strictly applied to Huibonhoa because it was her
counsel who prepared it. 8
The Gojoccos prayed that Huibonhoa be ordered to pay them the sum of P495,000.00 representing
unpaid rents from March 1, 1984 to January 31, 1985 and the monthly rent of P60,000.00 from
February 1, 1985 until Huibonhoa shall have surrendered the premises to them, and that she be
ordered to pay attorney's fees, moral and exemplary damages and the costs of suit.
On January 31, 1985, Rufina Gojocco Lim entered into an agreement 9 with Huibonhoa whereby, to put
an end to Civil Case No. 9402, the former agreed to extend the term of the lease by three (3) more
years or for eighteen (18) years from July 1, 1983. The agreement expressly provided that no rents
would be collected unless and until the construction work was already completed or that during the
construction, no monthly rental should be collected. It also provided that "in case some unforeseen
event should dramatically increase the cost of the building, then the amount of monthly rent shall be
reduced to such sum and the term of the lease extended for such duration as may be fair and
equitable, bearing in mind the actual construction cost of the building." The agreement recognized the
fact that the Aquino assassination that resulted in the "hoarding of construction materials and the
skyrocketing of the interest rates" on Huibonhoa's loans, resulted in the increase in actual cost of the
construction from P6,000,000.00 to between P11,000,000.00 and P12,000,000.00.
There is no record that Rufina Gojocco Lim was dropped as a defendant in Civil Case No. 9402 but
only Loretta Gojocco Chua and the Spouses Severino and Priscilla Gojocco filed the memorandum for
the defendants in that case. 10
On March 9, 1987, the Makati RTC 11 rendered a decision holding that Huibonhoa had not presented
clear and convincing evidence to justify the reformation of the lease contract. It considered as
"misplaced" her contention that the Aquino assassination was an "accident" within the purview of Art.
1359 of the Civil Code. It held that the act of Rufina G. Lim in entering into an agreement with
Huibonhoa that, in effect, "reformed" the lease contract, was not binding upon Severino and Loretta
Gojocco considering that they were separate and independent owners of the lots subject of the lease.
On this point, the trial court cited Sec, 25, Rule 130 of the Rules of Court which provides that the rights
of a party cannot be prejudiced by the act, declaration or omission of another. It thus decided Civil Case
No. 9402 as follows:
WHEREFORE, judgment is hereby rendered:
a) Dismissing the plaintiff's complaint and defendant Rufina Lim's counterclaim, with costs against
them;
b) Ordering the plaintiff to pay to defendant Loretta Gojocco Chua the amount of P360,000.00,
representing rentals due from March 1, 1984 to February 28, 1987, with interests thereon at the legal
rate from date of the filing of the complaint until full payment thereof, plus the sum of P15,000.00 per
month beginning March, 1987 and for as long as the plaintiff is in possession of the leased premises;
c) Ordering the plaintiff to pay to defendant Severino Gojocco Chua the amount of P360,000.00,
representing rentals due from March 1, 1984 to February 28, 1987, with interests thereon at the legal
rate from date of the filing of the complaint until full payment thereof, plus the sum of P15,000.00 per
month beginning March, 1987 and for as long as the plaintiff is in possession of the leased premises;
d) Ordering the plaintiff to pay attorney's fees in favor of the above-named defendants in the sum of
P36,000.00, aside from costs of suit.
SO ORDERED.
Upon motion of the Gojocco, the trial court amended the dispositive portion of its aforesaid decision in
that Huibonhua was ordered to pay each of Loretta Gojocco Chua and Severino Gojocco the amount of
P540,000.00 instead of P360,000.00 and that attorney's fees of P54,000.00, instead of P36,000.00, be
paid by Huibonhoa.
On the other hand, in Civil Case No. 102604, the Metropolitan Trial Court of Manila granted
Huibonhoa's prayer that the case be excluded from the operation of the Rule on Summary Procedure
for the reason that the unpaid rents sued upon amounted to P495,000.00. 12 Thereafter, Huibonhoa
presented a motion to dismiss or, in the alternative, to suspend proceedings in the case, contending
that the pendency of the action for reformation of contract constituted a ground of lis pendens or at the
very least, posed a prejudicial question to the ejectment case. The Gojoccos opposed such motion,
pointing out that while there was identity of parties between the two cases, the causes of action, subject
matter and reliefs sought for therein were different.
On May 10, 1985, after Huibonhoa had sent in her reply to the said opposition, Rufina G. Lim, through
counsel, prayed that she be dropped as plaintiff, in the case, and counsel begged leave to withdraw as
the lawyer of the latter in the case. Subsequently, Severino Gojocco and Loretta Gojocco Chua filed a
motion praying for an order requiring Huibonhoa to deposit the rents. On March 25, 1986, the court
below issued an Omnibus Order denying Huibonhoa's motion to dismiss, requiring her to pay monthly
rental of P30,000.00 starting March 1984 and every month thereafter, and denying Rufina G. Lim's
motion that she be dropped as plaintiff in the case. 13 Huibonhoa moved for reconsideration of said
order but the plaintiffs, apparently including Rufina, opposed the motion.
On July 21, 1986, Severino Gojocco and Huibonhoa entered into an agreement that altered certain
terms of the lease contract in the same way that the agreement between Huibonhoa and Rufina G. Lim
"novated" the contract.14
On March 24, 1987, the Metropolitan Trial Court of Manila issued an Order denying Huibonhoa's motion
for reconsideration and the Gojoccos' motion for issuance of a writ of preliminary attachment, and
allowing Huibonhoa a period of fifteen (15) days within which to deposit P30,000.00 a month starting
March 1984 and every month thereafter. 15 Huibonhoa interposed a second motion for reconsideration
of the March 25, 1986 order on the ground that she had amicably settled the case with Severino
Gojocco and Rufina G. Lim. She therein alleged that only P15,000.00 was due Loretta G. Chua. She
informed the court of the decision of the Makati Regional Trial Court in Civil Case No. 9402 and argued
that since that court had awarded the Gojoccos rental arrearages, it would be unjust should she be
made to pay rental arrearages, once again.
On June 30, 1987, the Metropolitan Trial Court of Manila issued an Order reiterating its decision to
assume jurisdiction over Civil Case No. 106097 and modified its March 24, 1987 Order by deleting the
portion thereof which required Huibonhua to deposit monthly rents. It also required Huibonhoa to file
her answer within fifteen (15) days from receipt of the copy of the court's order. Accordingly, on July 21,
1987, Huibonhoa sent in her answer alleging that the lease contract had been novated by the
agreements she had signed on January 31, 1985 and July 21, 1986, with Rufina G. Lim and Severino
Gojocco, respectively. Huibonhoa added that she had paid Severino Gojocco the amount of
P228,000.00 through an Allied Bank manager's check. 16
On August 27, 1987, the Metropolitan Trial Court of Manila issued a Pre-trial Order limiting the issues in
Civil Case No. 106097 to: (a) whether or not plaintiffs had the right to eject the defendant on the ground
of violation of the conditions of the lease contract and (b) whether or not Severino Gojocco had the right
to pursue the ejectment case in view of the agreement he had entered into with Huibonhoa on July 21,
1986.
On July 30, 1990, the Metropolitan Trial Court of Manila 17 came out with a decision "in favor of plaintiffs
Severino Gojocco and Loreta Gojocco Chua and against Florencia T. Huibonhoa." It ordered
Huibonhoa to vacate the lots owned by Severino Gojocco and Loreta Gojocco Chua and to pay each of
them the amounts P5,000.00 as attorney's fees and P1,000.00 as appearance fee. All three (3) party-
litigants appealed to the Regional Trial Court of Manila.
On February 14, 1991, the Regional Trial Court of Manila, Branch 55, 18 reversed the decision of the
Metropolitan Trial Court and ordered the dismissal of the complaint in Civil Case No. 106097. The
reversal of the inferior court's decision was based primarily on its finding that:
1. The suit below is intrinsically and inherently an action for cancellation of lease or rescission of
contract. In fact, the plaintiffs themselves recognized this intrinsic nature of the action by categorizing
the same action as one for cancellation of lease, ejectment and collection. The suit cannot properly be
reduced to one of simple ejectment as rights of the parties to the still existing contracts have yet to be
determined and resolved. Necessarily, to put an end to the parties' relation, the contract between them
has got to be abrogated, rescinded or resolved. The action for the purpose is however cognizable by
the Regional Trial Court as its subject-matter is incapable of pecuniary estimation (See Sec. 19 (1), B.P.
129).
Hence, Civil Case Nos. 9402 and 106097 (that was docketed before the RTC of Manila as Civil Case
No. 90-54557) were both elevated to the Court of Appeals.
In CA-G.R. CV No. 16575, the Court of Appeals rendered a Decision 19 on May 31, 1990, affirming the
decision of the Makati Regional Trial Court in Civil Case No. 9402. Huibonhoa filed a motion for the
reconsideration of such Decision and on October 18, 1990, the Court of Appeals modified the same
accordingly, by ordering that the amount of P270,825.00 paid by Huibonhoa to Severino and Priscilla
Gojocco be deducted from the total amount of unpaid rentals due the said spouses.
In CA-G.R. SP No. 24654, the Court of Appeals also affirmed the decision of the Regional Trial Court of
Manila in Civil Case No. 106097 by its Decision 20 promulgated on October 29, 1991. Considering the
allegations of the complaint for cancellation of lease, ejectment and collection, the Court of Appeals
ratiocinated and concluded:
These allegations, which are denied by private respondent, raised issues which go beyond the simple
issue of unlawful possession in ejectment cases. While the complaint does not seek the rescission of
the lease contract, ejecting the lessee would, in effect, deprive the lessee of the income and other
beneficial fruits of the building of which she is the owner until the end of the term of the lease. Certainly
this cannot be decreed in a summary action for ejectment. The decision of the MTC, it is true, only
ordered the ejectment of the private respondent from the leased premises. But what about the building
which, according to petitioners themselves, cost the private respondent P3,700,000.00 to construct?
Will it be demolished or will its ownership vest, even before the end of the 15-year term, in the
petitioners as owners of the land? Indeed, inextricably linked to the question of physical possession is
the ownership of the building which the lessee was permitted to put up on the land. To evict the lessee
from the land would be to bar her not only from entering the building which she owns but also from
collecting the rents from its tenants.
With respect to the contention of the Gojoccos that since Huibonhoa had submitted to the jurisdiction of
the Metropolitan Trial Court, the jurisdictional issue had been foreclosed, the Court of Appeals opined:
Petitioners point out that private respondent can no longer raise the question of jurisdiction because
she filed a motion to dismiss in the MTC but she did not raise this question (Rule 15, sec. 8). But the
Omnibus motion rule does not cover two grounds which, although not raised in a motion to dismiss, are
not waived. These are (1) failure to state a cause of action and (2) lack of jurisdiction over the subject
matter. (Rule 9, sec. 2). These grounds can be invoked any time. Moreover, in this case it was not really
private respondent who questioned the jurisdiction over the Metropolitan Trial Court. It was the Regional
Trial Court which did so motu propio.
On February 19, 1992, 21 the Court resolved that these two petitions for review on certiorari be
consolidated. Although they sprang from the same factual milieu, the petitions are to be discussed
separately, however, because the issues raised are cognate yet independent from each other.
In G.R. No. 95897
Petitioner Huibonhoa contends that:
1 THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE AND SERIOUS ERROR,
CONSTITUTING ABUSE OF DISCRETION, IN FINDING THE AGREEMENT BETWEEN PETITIONER
AND PRIVATE RESPONDENT SEVERINO GOJOCCO (ANNEX "E") WORTHLESS AND USELESS
ALTHOUGH IT HAS RECOGNIZED THE PAYMENTS WHICH RESPONDENT SEVERINO GOJOCCO
HAS RECEIVED FROM THE PETITIONER WHICH ACTUALLY CONSTITUTED AN ACT OF
RATIFICATION;
2. THE RESPONDENT COURT FAILED TO CONSIDER THE TRAGIC ASSASSINATION OF FORMER
SENATOR BENIGNO AQUINO AS A FORTUITOUS EVENT OR FORCE MAJEURE WHICH
JUSTIFIES THE ADJUSTMENT OF THE TERMS OF THE CONTRACT OF LEASE. 22
Art. 1305 of the Civil Code defines a contract as "a meeting of the minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service." Once the
minds of the contacting parties meet, a valid contract exists, whether it is reduced to writing or not.
When the terms of an agreement have been reduced to writing, it is considered as containing all the
terms agreed upon. As such, there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement, except when it fails to express
the true intent and agreement of the parties. 23 In such an exception, one of the parties may bring an
action for the reformation of the instrument to the end that their true intention may be expressed. 24
Reformation is that remedy in equity by means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties. 25 As to its nature, in Toyota Motor
Philippines Corporation v. Court of Appeals, 26 the Court said:
An action for reformation is in personam, not in rem, . . . even when real estate is involved. . . . It is
merely an equitable relief granted to the parties where through mistake or fraud, the instrument failed to
express the real agreement or intention of the parties. While it is a recognized remedy afforded by
courts of equity it may not be applied if it is contrary to well-settled principles or rules. It is a long-
standing principle that equity follows the law. It is applied in the absence of and never against statutory
law. . . . Courts are bound by rules of law and have no arbitrary discretion to disregard them. . . . Courts
of equity must proceed with outmost caution especially when rights of third parties may intervene. . . . .
Art. 1359 of the Civil Code provides that "(w)hen, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for
the reformation of the instrument to the end that such intention may be expressed. . . . "An action for
reformation of instrument under this provision of law may prosper only upon the concurrence of the
following requisites: (1) there must have been a meeting of the minds of the parties to the contact; (2)
the instrument does not express the true intention of the parties; and (3) the failure of the instrument to
express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. 27
The meeting of the minds between Huibonhoa, on the one hand, and the Gojoccos, on the other, is
manifest in the written lease contract duly executed by them. The success of the action for reformation
of the contract of lease at bar should therefore, depend on the presence of the two other requisites
aforementioned.
To prove that the lease contract does not evince the true intention of the parties, specifically as regards
the time when Huibonhoa should start paying rents, she presented as a witness one of the lessors,
Rufina G. Lim, who testified that prior to the execution of the lease contract on June 30, 1983, the
parties had entered into a Memorandum of Agreement on June 8, 1983; that on December 21, 1984,
the lessors revoked the special power of attorney in favor of Huibonhoa; that on January 31, 1985, she
entered into an agreement with Huibonhoa whereby the amount of the rent was reduced to P10,000 a
month and the term of the lease was extended by three (3) years, and that Huibonhoa started paying
rental in September 1984. 28
There is no statement in such testimony that categorically points to the fact that the contract of lease
has failed to express the true intention of the parties. While it is true that paragraph 4 of the
Memorandum of Agreement 29states that the P15,000 monthly rental due each of the three lessors shall
be collected in advance within the first five (5) days of each month "upon completion of the building,"
the same memorandum of agreement also provides as follows:
8. This Memorandum of Agreement shall bind the SECOND PARTY only after the signing of the
Contact of Lease by both parties which shall not be later than June 30, 1983, provided, however, that
should the SECOND PARTY decide not to proceed with the signing on the deadline aforestated, the
FIRST PARTY shall not hold her liable therefor.
In view thereof, reliance on the provisions of the Memorandum of Agreement is misplaced considering
that its provisions would bind the parties only upon the signing of the lease contract. However, the lease
contract that was later entered into by the parties qualified the time when the lessee should start paying
the monthly rentals. Paragraph 5 of the lease contract states that the "LESSEE's" obligation to pay the
rental shall start only upon the completion of the building, but if it is not completed within eight (8)
months from date hereof as provided for in par. 5 (sic) above, the monthly rental shall already accrue
and shall be paid by LESSEE to LESSOR." That qualification applies even though the next sentence
states that "(I)n other words, during the period of construction, no monthly rentals shall be collected
from LESSEE." Otherwise, there was no reason for the insertion of that qualification on the period of
construction of the building the termination of which would signal the accrual of the monthly rentals.
Non-inclusion of that qualification would also give the lessee the unbridled discretion as to the period of
construction of the building to the detriment of the lessor's right to exercise ownership thereover upon
the expiration of the 15-year lease period.
In actions for reformation of contact, the onus probandi is upon the party who insists that the contract
should be reformed. 30 Huibonhoa having failed to discharge that burden of proving that the true
intention of the parties has not been accurately expressed in the lease contract sought to be reformed,
the trial court correctly held that no clear and convincing proof warrants the reformation thereof.
In the complaint, Huibonhoa alleged:
5.9 By reason of mistake or accident, the contract (Annex "A") fails to state the true intention and real
agreement of the parties to the effect that in case some unforeseen event should dramatically increase
the cost of the building, then the amount of monthly rent shall be reduced to such sum and the term of
the lease extended for such duration as may be fair and equitable to both parties, bearing in mind the
actual construction cost of the building.
5.10. As a direct result of the tragic Aquino assassination on 21 August 1983, which the parties did not
foresee and coming as it did barely two (2) months after the contract (Annex "A") had been signed, the
country's economy dramatically turned from bad to worse, and the resulting ill effects thereof
specifically the hoarding of construction materials adversely affected the plaintiff resulting, among
others, in delaying the construction work and the skyrocketing of the interest rates on plaintiff's loans,
such that instead of roughly P6 Million as originally budgeted the building in question now actually cost
the plaintiff something like 11 to 12 million pesos, more or less.
In the present petition, Huibonhoa asserts that by reason of oversight or mistake, the true intention of
the parties that should some unforeseen event dramatically increase the cost of the building, then the
amount of monthly rent shall be reduced to such sum and the term of the lease extended to such period
as would be fair and equitable to both sides, bearing in mind always that petitioner was ordinary
LESSEE but was an investor-developer. She insists that "(i)n truth, the contract, while that of lease,
really amounted to a common business venture of the parties." 31
On account of her failure to prove what costly mistake allegedly suppressed the true intention of the
parties, Huibonhoa honestly admitted that there was an oversight in the drafting of the contract by her
own counsel. By such admission, oversight may not be attributed to all the parties to the contract and
therefore, it cannot be considered a valid reason for the reformation of the same contract. In fact,
because it was Huibonhoa's counsel himself who drafted the contract, any obscurity therein should be
construed against her. 32 Unable to substantiate her stance that the true intention of the parties is not
expressed in the lease contract in question, Huibonhoa nonetheless contends that paragraph 5 thereof
should be interpreted in such a way that she should only begin paying monthly rent in October 1984
and not in March 1984. 33
Such contention betrays Huibonhoa's confusion on the distinction between interpretation and
reformation of contracts. In National Irrigation Administration v. Gamit, 34 the Court distinguished the two
concepts as follows:
"Interpretation" is the act of making intelligible what was before not understood, ambiguous, or not
obvious. It is a method by which the meaning of language is ascertained. The "interpretation" of a
contract is the determination of the meaning attached to the words written or spoken which make the
contract. On the other hand, "reformation" is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the parties. In
granting reformation, therefore, equity is not really making a new contract for the parties, but is
confirming and perpetuating the real contract between the parties which, under the technical rules of
law, could not be enforced but for such reformation. As aptly observed by the Code Commission, the
rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting of the minds of the parties.
By bringing an action for the reformation of subject lease contract, Huibonhoa chose to reform the
instrument and not the contract itself. 35 She is thus precluded from inserting stipulations that are not
extant in the lease contract itself lest the very agreement embodied in the instrument is altered.
Neither does the Court find merit in her submission that the assassination of the late Senator Benigno
Aquino, Jr., was a fortuitous event that justified a modification of the terms of the lease contract.
A fortuitous event is that which could not be foreseen, or which even if foreseen, was inevitable. To
exempt the obligor from liability for a breach of an obligation due to an "act of God", the following
requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury to the creditor. 36
In the case under scrutiny, the assassination of Senator Aquino may indeed be considered a fortuitous
event. However, the said incident per se could not have caused the delay in the construction of the
building. What might have caused the delay was the resulting escalation of prices of commodities
including construction materials. Be that as it may, there is no merit in Huibonhoa's argument that the
inflation borne by the Filipinos in 1983 justified the delayed accrual of monthly rental, the reduction of its
amount and the extension of the lease by three (3) years.
Inflation is the sharp increase of money or credit or both without a corresponding increase in business
transaction. 37 There is inflation when there is an increase in the volume of money and credit relative to
available goods resulting in a substantial and continuing rise in the general price level. 38 While it is of
judicial notice that there has been a decline in the purchasing power of the Philippine peso, this
downward fall of the currency cannot be considered unforeseeable considering that since the 1970's we
have been experiencing inflation. It is simply a universal trend that has not spared our
country. 39 Conformably, this Court upheld the petitioner's view in Occea v. Jabson 40 that even a
worldwide increase in prices does not constitute a sufficient cause of action for modification of an
instrument.
It is only when an extraordinary inflation supervenes that the law affords the parties a relief in
contractual obligations. 41 In Filipino Pipe and Foundry Corporation v. NAWASA, 42 the Court explained
extraordinary inflation thus:
Extraordinary inflation exists when "there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said currency,
and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation. (Tolentino, Commentaries
and Jurisprudence on the Civil Code, Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of what happened to the Deutschmark
in 1920.
More recently, in the 1920's Germany experienced a case of hyperinflation. In early 1921, the value of
the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S.
dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S.
dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour. Women were paid
several times a days so that they could rush out and exchange their money for something of value
before what little purchasing power was left dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the windows to their waiting wives, who would
rush to unload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread,
billions." (Sidney Rutberg, "The Money Balloon" New York: Simon and Schuster, 1975, p. 19, cited in
"Economics, An Introduction" by Villegas & Abola, 3rd Ed.)"
No decrease in the peso value of such magnitude having occurred, Huibonhoa has no valid ground to
ask this Court to intervene and modify the lease agreement to suit her purpose. As it is, Huibonhoa
even failed to prove by evidence, documentary or testimonial, that there was an extraordinary inflation
from July 1983 to February 1984. Although she repeatedly alleged that the cost of constructing the
building doubled from P6 million to P12 million, she failed to show by how much, for instance, the price
index of goods and services had risen during that intervening period. An extraordinary inflation cannot
be assumed. 43 Hence, for Huibonhoa to claim exemption from liability by reason of fortuitous event
under Art. 1174 of the Civil Code, she must prove that inflation was the sole and proximate cause of the
loss or destruction of the contract 44 or, in this case, of the delay in the construction of the building.
Having failed to do so, Huibonhoa's contention is untenable.
Pathetically, if indeed a fortuitous event deterred the timely fulfillment of Huibonhoa's obligation under
the lease contract, she chose the wrong remedy in filing the case for reformation of the contract.
Instead, she should have availed of the remedy of recission of contract in order that the court could
release her from performing her obligation under Arts. 1266 45 and 1267 46 of the Civil Code, so that the
parties could be restored to their status prior to the execution of the lease contract.
As regards Huibonhoa's assertion that the lease contract was novated by Rufina G. Lim and Severino
Gojocco who entered into an agreement with her on January 31, 1985 and July 21, 1986, respectively,
it bears stressing that the lease contract they had entered into is not a simple one. It is unique in that
while there is only one lessee, Huibonhoa, and the contract refers to a "LESSOR," there are actually
three lessors with separate certificates of title over the three lots on which Huibonhoa constructed the 4-
storey building. As Huibonhoa herself ironically asserts, the lease contract is an "indivisible" one
because the lessors' interests "cannot be separated even if they owned the lands separately under
different certificates of title." 47 Hence, the acts of Rufina G. Lim and Severino Gojocco in entering into
the new agreement with Huibonhoa could have affected only their individual rights as lessors because
no new agreement was forged between Huibonhoa and all the lessors, including Loreta Gojocco.
Consequently, because the three lot owners simultaneously entered into the lease contract with
Huibonhoa, novation of the contract could only be effected by their simultaneous act of abrogating the
original contract and at the same time forging a new one in writing. Although as a rule no form of words
or writing is necessary to give effect to a novation, 48 a written agreement signed by all the parties to the
lease contract is required in this case. Ordinary diligence on the part of the parties demanded that they
execute a written agreement if indeed they wanted to enter into a new one because of the 15-year life
span of the lease affecting real property and the fact that third persons would be affected thereby on
account of the express agreement allowing the lessee to lease the building to third parties. 49
Under the law, novation is never presumed. The parties to a contract must expressly agree that they
are abrogating their old contract in favor of a new one. 50 Accordingly, it was held that no novation of a
contract had occurred when the new agreement entered into between the parties was intended "to give
life" to the old one. 51 "Giving life" to the contract was the very purpose for which Rufina G. Lim signed
the agreement on January 31, 1986 with Huibonhoa. It was intended to graft into the lease contract
provisions that would facilitate fulfillment of Huibonhoa's obligation therein. 52That the new agreement
was meant to strengthen the enforceability of the lease is further evidenced by the fact, although its
stipulations as to the period of the lease and as to the amount of rental were altered, the agreement
with Rufina G. Lim does not even hint that the lease itself would be abrogated. As such, even
Huibonhoa's agreement with Rufina G. Lim cannot be considered a novation of the original lease
contract. Where the parties to the new obligation expressly recognize the continuing existence and
validity of the old one, where, in other words, the parties expressly negated the lapsing of the old
obligation, there can be no novation. 53
As regards the new agreement with Severino Gojocco, it should be noted that he only disclaimed its
existence when the check issued by Huibonhoa to him, allegedly in accordance with the new
agreement, was dishonored. That unfortunate fact might have led Severino Gojocco to refuse
acceptance of rents paid by Huibonhoa subsequent to the dishonor of the check. However, the non-
existence of the new agreement with Severino Gojocco is a question of fact that the courts below had
properly determined. The Court of Appeals has affirmed the trial court's finding that "not only was
Gojocco's consent vitiated by fraud and false representation there likewise was failure of consideration
in the execution of Exhibit C, (and therefore) the said agreement is legally inefficacious." 54 In the
Resolution of October 18, 1990, the Court of Appeals considered the amount of P270,825.00
represented by the check handed by Huibonhoa to Severino Gojocco as "partial settlement" or "partial
payment 55 clearly under the terms of the original lease contract. There is no reason to depart from the
findings and conclusions of the appellate court on this matter.
Nevertheless, because Severino Gojocco repudiates the new agreement even before this Court as his
consent thereto had allegedly been "vitiated by fraud and false representation," 56 Huibonhoa may not
escape complete fulfillment of her obligation under the original lease contract as far as Severino
Gojocco is concerned. She is thus contractually bound to pay him the unpaid rents.
Aside from the monthly rental that should be paid by Huibonhoa starting March 1984, Loreto Gojocco
Chua is also entitled to interest at the rate of 6% per annum from the accrual of the rent in accordance
with Article 2209 57of the Civil Code until it is fully paid because the monetary award does not partake of
a loan or forbearance in money. However, the interim period from the finality of this judgment until the
monetary award is fully satisfied, is equivalent to a forbearance of credit and therefore, during that
interim period, the applicable rate of legal interest shall be 12%. 58 As regards Severino Gojocco, he
shall be entitled to such interests only from the time that Huibonhoa defaulted paying her monthly
rentals to him considering that he had already received from her the amount of P270,825.00 as rentals.
The amount of monthly rentals upon which interest shall be charged shall be that stipulated in
paragraph 5 of the lease contract or P15,000.00 to each lessor. That amount, however, shall be subject
to the provision therein that the amount of rentals shall be "adjusted/increased upon the corresponding
increase in the rental of subleases using the percentage increase in the totality of rentals of the sub-
lessees as basis for the percentage increase of monthly rental that LESSEE will pay to LESSOR."
Upon remand of this case therefore, the trial court shall determine the total monetary award in favor of
Loreta Gojocco Chua and of Severino Gojocco.
From the facts of the case, it is clear that what Huibonhoa aimed for in filing the action for reformation
of the lease contract, is to absolve herself from her delay in the payment of monthly rentals and to
extend the term of the lease, which under the original lease contract, expired in 1988. The ostensible
reasons behind the institution of the case she alleged were the unfavorable repercussions resulting
from the economic and political upheaval on the heels of the Aquino assassination. However, a contract
duly executed is the law between the parties who are obliged to comply with its terms. Events occurring
subsequent to the signing of an agreement may suffice to alter its terms only if, upon failure of the
parties to arrive at a valid compromise, the court deems the same to be sufficient reasons in law for
altering the terms of the contract. This court once said:
It is a long established doctrine that the law does not relieve a party from the effects of an unwise,
foolish, or disastrous contract, entered into with all the required formalities and with full awareness of
what he was doing. Courts have no power to relieve parties from obligations voluntarily assumed,
simply because their contracts turned out to be disastrous deals or unwise investments. 59
In G.R. No. 102604
Petitioners Severino Gojocco and Loreta G. Chua assail the Decision of the Court of Appeals on the
following grounds;
a) RESPONDENT COURT HAS DECIDED QUESTIONS OF SUBSTANCE NOT HERETOFORE
DETERMINED BY THIS HONORABLE COURT OR HAS DECIDED THEM IN A WAY CLEARLY
CONTRARY TO LAW OR THE APPLICABLE DECISIONS OF THIS HONORABLE COURT;
b) RESPONDENT COURT HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE
OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWERS OF
SUPERVISION BY THE HONORABLE COURT. 60
The contentions of petitioners relate to the basic issue raised in the petition whether or not the Court
of Appeals erred in affirming the decision of the Regional Trial Court that dismissed for lack of
jurisdiction the complaint for ejectment brought by petitioners before the Metropolitan Trial Court of
Manila. In other words, the issue for determination here is: whether or not the Metropolitan Trial Court
had jurisdiction over the complaint for "cancellation of lease, ejectment and collection" in Civil Case No.
90-54557.
The governing law on jurisdiction when the complaint was filed on January 14, 1985 was Sec. 33 (2) of
Batas Pambansa Blg. 129 vesting municipal courts with:
Exclusive original jurisdiction over cases of forcible entry and unlawful detainer. Provided, That when, in
such cases, the defendant raises the question of ownership in his pleadings and the question of
possession cannot be resolved without deciding the issue of ownership, the issue of ownership should
be resolved only to determine the issue of possession.
Thereunder, when the issue of ownership is indispensable to the resolution of the issue of possession,
the Metropolitan Trial Court is empowered to decide it as well. 61 Explaining this jurisdictional matter,
in Dizon v. Court of Appeals, 62 the Court said:
. . . . Well-settled is the rule that in an ejectment suit, the only issue is possession de facto or physical
or material possession and not possession de jure. So that, even if the question of ownership is raised
in the pleadings, as in this case, the court may pass upon such, issue but only to determine the
question of possession especially if the former is inseparably linked with the latter. It cannot dispose
with finality the issue of ownership-such issue being inutile in an ejectment suit except to throw light on
the question of possession. This is why the issue of ownership or title is generally immaterial and
foreign to an ejectment suit.
Detainer, being a mere quieting process, questions raised on real property are incidentally discussed.
In fact, any evidence of ownership is expressly banned by Sec. 4, Rule 70 except to resolve the
question of possession. Thus, all that the court may do, is to make an initial determination of who is the
owner of the property so that it can resolve who is entitled to its possession absent other evidence to
resolve the latter. But such determination of ownership is not clothed with finality. Neither will it affect
ownership of the property nor constitute a binding and conclusive adjudication on the merits with
respect to the issue of ownership. . . . .
The Court has consistently held that in forcible entry and unlawful detainer cases, jurisdiction is
determined by the nature of the action as pleaded in the complaint. 63 The test of the sufficiency of the
facts alleged in the complaint is whether or not admitting the facts alleged therein, the court could
render a valid judgment upon the same in accordance with the prayer of the plaintiff. 64
In an ejectment case, or specifically in an action for unlawful detainer like the present case, it suffices to
allege that the defendant is unlawfully withholding possession of the property in question. 65 A complaint
for unlawful detainer is therefore sufficient if it alleges that the withholding of possession or the refusal
to vacate is unlawful without necessarily employing the terminology of the law. 66 It is therefore in order
to make an inquiry into the averments of the complaint in Civil Case No. 90-54557. 67 The complaint,
that was called one for "cancellation of lease, ejectment and collection," alleged the following facts:
1. The parties are residents of different barangyas and therefore the provisions of P.D. No. 1508 (the
law on the katarungang pambarangay) are inapplicable;
2. The plaintiffs, Rufina G. Lim, Severino Gojocco and Loreta Gojocco Chua are the registered owners
of three parcels of commercial land in Ilaya Street, Binondo, Manila.
3. On June 30, 1983, they entered into a lease contract with defendant Huibonhoa whereby the latter
would construct a 4-storey building on the three lots that, after the expiration of the 15-year period of
the lease, would be owned by the lessors, and that, upon completion of construction of the building
within eight (8) months from signing of the lease contract, the lessee would start paying monthly
rentals;
4. After the expiration of the 8-months period or in March 1984, the rentals of P45,000.00 a month
accrued.
5. Despite "verbal demands, meetings and conferences" by which the plaintiffs demanded from
demanded from defendant payment of the total amount due on account of the lease contract, defendant
failed to pay;
6. On December 19, 1984, the plaintiffs, through counsel, wrote defendant letter informing her of their
intention to "terminate and cancel the lease for violation of its terms by the defendant" at the same time
demanding restitution of the lots in question and payment of all rentals due;
7. Despite such verbal and written demands, the defendant refused to comply therewith to the damage
and prejudice of the plaintiffs considering that defendant was subleasing the stalls, bodegas and offices
to tenants who had paid her goodwill money and "exorbitant rentals" since March 1984 or prior to the
completion of the building until the filing of the complaint in amounts totaling millions of pesos;
8. Defendant continued to sublease vacant spaces while depriving plaintiffs of reasonable
compensation for the use and occupation of the premises;
9. Defendant did not utilize her own capital in the construction of the building as she was able to
mortgage the lots to the China Banking Corporation in the total amount of P3,700,000.00 as well as
collect goodwill money from tenants;
10 Plaintiffs revoked the authority given to defendant to encumber the property because of her failure of
pay and liquidate the real estate loan within the one-year period which expired on September 30, 1984;
11. That plaintiffs were forced to file the action by reason of defendant's bad faith and unwarranted
refusal to satisfy their claims; and
12 The rentals should be made to answer for plaintiffs' monetary claims on account of defendant's
impending departure from the Philippines.
After praying for the issuance of a preliminary writ of attachment, the plaintiffs prayed as follows:
WHEREFORE, premises considered, it is most respectfully prayed that judgment be rendered in favor
of plaintiffs and against the defendant as follows:
1. Ordering defendant and all persons claiming rights under her to forthwith vacate the leased premises
described in this Complaint and to surrender actual and physical possession to herein plaintiffs and/or
their duly authorized representatives;
2. Ordering defendant to pay plaintiff all rentals due and unpaid at the agreed rate of P45,000.00 per
month from March, 1984 to January, 1985 or for a period of 11 months with legal interests thereon until
fully paid;
3. Ordering the defendant to deposit past and future rentals with this Honorable Court, or in a bank
acceptable to both parties, the Passbook to be turned over and submitted to this Honorable Court for
further disposition;
4. Sentencing defendant to pay the fair rental value of, and/or reasonable compensation for, the use
and occupancy of the leased premises at the rate of P60,000 per month beginning February 5, 1985
and every 5th of the succeeding month thereafter until the premises is actually vacated and restored to
herein plaintiffs;
5. To pay plaintiffs a sum equivalent to 20% of the total amount claimed in this action for and as
attorney's fees exclusive of appearance fees and costs of this action;
6. That pending hearing of this case, a writ of preliminary attachment be issued against the credits due
defendant from the tenants or sublessees of the premises in question to serve as security for the
satisfaction of any judgment that may be recovered in this case;
7. For such other and further relief as this Honorable Court may deem proper, just and equitable;
8. Plaintiffs further respectfully pray that for expediency, considering the nature of this action and to
protect plaintiffs from incurring further losses, damages and expenses concomittant to the deprivation
or loss of their possession, that notwithstanding the amount of claim involved, they hereby respectfully
invoke the applicability of the rules on Summary Procedure in the interest of justice.
Undoubtedly, the complaint avers ultimate facts required for a cause of action in an unlawful detainer
case. It alleges possession of the properties by the lessee, verbal and written demands to pay rental
arrearages and to vacate the leased premises, continued refusal of the lessees to surrender
possession of the premises, and the fact that the action was filed within one year from demand to
vacate.
A reading of the allegations of the complaint and the reliefs prayed for indeed reveals facts that appear
to be extraneous to the primary aim of recovering possession of property in an action for unlawful
detainer although these facts do not involve issue of ownership of the premises. Thus, consonant with
the allegation that defendant was leasing the spaces in the building to the tune of millions of peso,
plaintiffs pray for an increase in monthly rentals to P60,000.00 a month starting February 5, 1985 or
after construction of the building had been completed. The prayer likewise speaks of "past and future
rentals" that should be deposited with the court or in an acceptable bank. In other words, the complaint
seeks relief that are not limited to payment of the rent arrearages and the eviction of defendant from the
leased premises.
Although the reasons of their own the Gojoccos opted not to express in the complaint their intention to
terminate the lease, such intention could be gleaned from their prayer that the court should "sentenced"
Huibonhoa to pay the higher rent of P60,000.00 a month. That explains why the complaint is captioned
as one for "cancellation of the lease" aside from its being one for ejectment and "collection." In praying
that the court directs the defendant to pay the increased rental of P60,000.00 a month, plaintiffs, in
effect, would want the existing contract terminated in order that the court could substitute it with another
providing for an increased monthly rental.
However, forging contracts for parties in a case is beyond the jurisdiction of courts. Otherwise, it would
result in the court's substitution of its own volition in a contract that should express only the parties' will.
Necessarily, the Metropolitan Trial Court could not favorably act on the prayer for cancellation of the
contract with another containing terms suggested by the plaintiffs as the allegations and prayer therefor
are no more than superfluities that do not affect the main cause of action averred in the complaint. The
court therefore granted only the main relief sought by the plaintiffs-the eviction of the defendant.
The Regional Trial Court incorrectly held that the complaint was also for rescission of contract, a case
that is certainly not within the jurisdiction of the Metropolitan Trial Court. By the allegations of the
complaint, the Gojoccos' aim was to cancel or terminate the contract because they sought its partial
enforcement in praying for rental arrearages. There is a distinction in law between cancellation of a
contract and its rescission. To rescind is to declare a contract void in its inception and to put an end to it
as though it never were. It is not merely to terminate it and release parties from further obligations to
each other but to abrogate it from the beginning and restore the parties to relative positions which they
would have occupied had no contract ever been made. 68
Termination of a contract is congruent with an action for unlawful detainer. The termination or
cancellation of a contract would necessarily entail enforcement of its terms prior to the declaration of its
cancellation in the same way that before a lessee is ejected under a lease contract, he has to fulfill his
obligations thereunder that had accrued prior to his ejectment. However, termination of a contract need
not undergo judicial intervention. The parties themselves may exercise such option. Only upon
disagreement between the parties as to how it should be undertaken may the parties resort to courts.
Hence, notwithstanding the allegations in the complaint that are extraneous or not essential in an action
for unlawful detainer, the Metropolitan Trial Court correctly assumed jurisdiction over Civil Case No. 90-
54557.
The Court finds sustainable basis for the observation of the Court of Appeals that execution of the
judgment ejecting Huibonhoa would cause complications that are anathema to a peaceful resolution of
the controversy between the parties. Thus, while Huibonhoa would be ejected from the lots owned by
Severino Gojocco and Loreta Gojocco Chua, she would be bound by her agreement with Rufina G. Lim
to continue with the lease. The result would be disadvantageous to both Huibonhoa and Severino
Gojocco and Loreta G. Chua. The said owners would be unable to exercise rights of ownership over
their lots upon which the building was constructed unless they remove or buy two-thirds of the building.
However, an action for unlawful detainer does not preclude the lessee or ejected party from availing of
other remedies provided by law. The prevailing doctrine is that suits or actions for the annulment of
sale, title or document do not abate any ejectment action respecting the same, property. 69 In fact, in
this case, the lessee, as it was, "jumped the gun" over the lessors in filing the action for reformation of
the lease contract. That it proved unfavorable to her does not detract from the fact that the controversy
between her and the lessors has been resolved in accordance with law albeit not in consonance with
the wishes of all the parties.
Be that as it may, the problem of ejecting Huibonhoa has been rendered moot and academic by the
expiration of the lease contract litigated upon in June 1998. The parties might have availed of the
provision of paragraph 1 of the lease contract whereby the parties agreed to renew it "for a similar or
shorter period upon terms and conditions mutually agreeable" to them. If they opted to brush aside that
provision, with more reason, Huibonhoa's eviction should ensue as a matter of enforcement of the
lease contract.
WHEREFORE, judgment is hereby rendered as follows:
a) In G.R. No. 95897, the decision of the Court of Appeals in CA-G.R. CV No. 16575, dismissing
petitioner's complaint for reformation of contract, is AFFIRMED with the modifications that:
1] Private respondent Loreta Gojocco Chua is adjudged entitled to legal interest of 6% per annum from
March, 1984, the time the rents became due;
2] Private respondent Severino Gojocco shall receive 6% legal interest only from the time Florencia T.
Huibonhoa defaulted in the payment of her monthly rents; and
3] Legal interest of 12% per annum shall accrue from the finality of this decision until the amount due is
fully paid.
b) In G.R. No. 102604, the decision of the Court of Appeals in CA-G.R. SP No. 24654, affirming the
decision of the Regional Trial Court of origin which dismissed the ejectment case instituted by the
petitioners against the private respondent is SET ASIDE; the order of ejectment issued by the
Metropolitan Trial Court a quo on July 30, 1980 is UPHELD; and the private respondent and all persons
claiming authority under her are ordered to vacate the land and portion of the building corresponding to
Lot No. 26-B covered by TCT No. 80728 of petitioner Severino Gojocco, and the portion corresponding
to Lot No. 26-C covered by TCT No. 155450 of petitioner Loreta Chua. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-25906 May 28, 1970
PEDRO D. DIOQUINO, plaintiff-appellee,
vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO, defendants-appellants.
FERNANDO, J.:
The present lawsuit had its origin in a relationship, if it could be called such, the use of a car owned by
plaintiff Pedro D. Dioquino by defendant Federico Laureano, clearly of a character casual and
temporary but unfortunately married by an occurrence resulting in its windshield being damaged. A
stone thrown by a boy who, with his other companions, was thus engaged in what undoubtedly for them
must have been mistakenly thought to be a none too harmful prank did not miss its mark. Plaintiff would
hold defendant Federico Laureano accountable for the loss thus sustained, including in the action filed
the wife, Aida de Laureano, and the father, Juanito Laureano. Plaintiff prevail in the lower court, the
judgment however going only against the principal defendant, his spouse and his father being absolved
of any responsibility. Nonetheless, all three of them appealed directly to us, raising two questions of law,
the first being the failure of the lower court to dismiss such a suit as no liability could have been
incurred as a result of a fortuitous event and the other being its failure to award damages against
plaintiff for the unwarranted inclusion of the wife and the father in this litigation. We agree that the lower
court ought to have dismissed the suit, but it does not follow that thereby damages for the inclusion of
the above two other parties in the complaint should have been awarded appellants.
The facts as found by the lower court follow: "Attorney Pedro Dioquino, a practicing lawyer of Masbate,
is the owner of a car. On March 31, 1964, he went to the office of the MVO, Masbate, to register the
same. He met the defendant Federico Laureano, a patrol officer of said MVO office, who was waiting
for a jeepney to take him to the office of the Provincial Commander, PC, Masbate. Attorney Dioquino
requested the defendant Federico Laureano to introduce him to one of the clerks in the MVO Office,
who could facilitate the registration of his car and the request was graciously attended to. Defendant
Laureano rode on the car of Atty. Dioquino on his way to the P.C. Barracks at Masbate. While about to
reach their destination, the car driven by plaintiff's driver and with defendant Federico Laureano as the
sole passenger was stoned by some 'mischievous boys,' and its windshield was broken. Defendant
Federico Laureano chased the boys and he was able to catch one of them. The boy was taken to Atty.
Dioquino [and] admitted having thrown the stone that broke the car's windshield. The plaintiff and the
defendant Federico Laureano with the boy returned to the P.C. barracks and the father of the boy was
called, but no satisfactory arrangements [were] made about the damage to the
windshield." 1
It was likewise noted in the decision now on appeal: "The defendant Federico Laureano refused to file
any charges against the boy and his parents because he thought that the stone-throwing was merely
accidental and that it was due to force majeure. So he did not want to take any action and after
delaying the settlement, after perhaps consulting a lawyer, the defendant Federico Laureano refused to
pay the windshield himself and challenged that the case be brought to court for judicial adjudication.
There is no question that the plaintiff tried to convince the defendant Federico Laureano just to pay the
value of the windshield and he even came to the extent of asking the wife to convince her husband to
settle the matter amicably but the defendant Federico Laureano refused to make any settlement,
clinging [to] the belief that he could not be held liable because a minor child threw a stone accidentally
on the windshield and therefore, the same was due to force majeure." 2
1. The law being what it is, such a belief on the part of defendant Federico Laureano was justified. The
express language of Art. 1174 of the present Civil Code which is a restatement of Art. 1105 of the Old
Civil Code, except for the addition of the nature of an obligation requiring the assumption of risk,
compels such a conclusion. It reads thus: "Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk,
no person shall be responsible for those events which could not be, foreseen, or which, though
foreseen were inevitable." Even under the old Civil Code then, as stressed by us in the first decision
dating back to 1908, in an opinion by Justice Mapa, the rule was well-settled that in the absence of a
legal provision or an express covenant, "no one should be held to account for fortuitous cases." 3 Its
basis, as Justice Moreland stressed, is the Roman law principle major casus est, cui humana infirmitas
resistere non potest. 4 Authorities of repute are in agreement, more specifically concerning an obligation
arising from contract "that some extraordinary circumstance independent of the will of the obligor, or of
his employees, is an essential element of a caso fortuito." 5 If it could be shown that such indeed was
the case, liability is ruled out. There is no requirement of "diligence beyond what human care and
foresight can provide." 6
The error committed by the lower court in holding defendant Federico Laureano liable appears to be
thus obvious. Its own findings of fact repel the motion that he should be made to respond in damages to
the plaintiff for the broken windshield. What happened was clearly unforeseen. It was a fortuitous event
resulting in a loss which must be borne by the owner of the car. An element of reasonableness in the
law would be manifestly lacking if, on the circumstances as thus disclosed, legal responsibility could be
imputed to an individual in the situation of defendant Laureano. Art. 1174 of the Civil Code guards
against the possibility of its being visited with such a reproach. Unfortunately, the lower court was of a
different mind and thus failed to heed its command.
It was misled, apparently, by the inclusion of the exemption from the operation of such a provision of a
party assuming the risk, considering the nature of the obligation undertaken. A more careful analysis
would have led the lower court to a different and correct interpretation. The very wording of the law
dispels any doubt that what is therein contemplated is the resulting liability even if caused by a
fortuitous event where the party charged may be considered as having assumed the risk incident in the
nature of the obligation to be performed. It would be an affront, not only to the logic but to the realities of
the situation, if in the light of what transpired, as found by the lower court, defendant Federico Laureano
could be held as bound to assume a risk of this nature. There was no such obligation on his part.
Reference to the leading case of Republic v. Luzon Stevedoring Corp. 7 will illustrate when the nature of
the obligation is such that the risk could be considered as having been assumed. As noted in the
opinion of Justice J.B.L. Reyes, speaking for the Court: "The appellant strongly stresses the
precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow
down river its barge L-1892; that it assigned to the task the more competent and experienced among its
patrons, had the towlines, engines and equipment double-checked and inspected; that it instructed
its patrons to take extra-precautions; and concludes that it had done all it was called to do, and that the
accident, therefore, should be held due to force majeure or fortuitous event." Its next paragraph
explained clearly why the defense of caso fortuito or force majeure does not lie. Thus: "These very
precautions, however, completely destroy the appellant's defense. For caso fortuito or force
majeure (which in law are identical in so far as they exempt an obligor from liability) by definition, are
extraordinary events not foreseeable or avoidable, 'events that could not be foreseen, or which, though
foreseen, were inevitable' (Art. 1174, Civil Code of the Philippines). It is, therefore, not enough that the
event should not have been foreseen or participated, as is commonly believed, but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to
foresee the same: un hecho no constituye caso fortuito por la sola circunstancia de que su existencia
haga mas dificil o mas onerosa la accion diligente del presente ofensor' (Peirano
Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud, Traite de la Responsibilite Civile, Vol. 2,
sec. 1569). The very measures adopted by appellant prove that the possibility of danger was not only
foreseeable, but actually foreseen, and was not caso fortuito."
In that case then, the risk was quite evident and the nature of the obligation such that a party could
rightfully be deemed as having assumed it. It is not so in the case before us. It is anything but that. If
the lower court, therefore, were duly mindful of what this particular legal provision contemplates, it could
not have reached the conclusion that defendant Federico Laureano could be held liable. To repeat, that
was clear error on its part.
2. Appellants do not stop there. It does not suffice for them that defendant Federico Laureano would be
freed from liability. They would go farther. They would take plaintiff to task for his complaint having
joined the wife, Aida de Laureano, and the father, Juanita Laureano. They were far from satisfied with
the lower court's absolving these two from any financial responsibility. Appellants would have plaintiff
pay damages for their inclusion in this litigation. We are not disposed to view the matter thus.
It is to be admitted, of course, that plaintiff, who is a member of the bar, ought to have exercised greater
care in selecting the parties against whom he would proceed. It may be said that his view of the law
that would consider defendant Federico Laureano liable on the facts as thus disclosed, while
erroneous, is not bereft of plausibility. Even the lower court, mistakenly of course, entertained similar
view. For plaintiff, however, to have included the wife and the father would seem to indicate that his
understanding of the law is not all that it ought to have been.
Plaintiff apparently was not entirely unaware that the inclusion in the suit filed by him was characterized
by unorthodoxy. He did attempt to lend some color of justification by explicitly setting forth that the
father was joined as party defendant in the case as he was the administrator of the inheritance of an
undivided property to which defendant Federico Laureano could lay claim and that the wife was likewise
proceeded against because the conjugal partnership would be made to respond for whatever liability
would be adjudicated against the husband.
It cannot be said that such an attempt at justification is impressed with a high persuasive quality. Far
from it. Nonetheless, mistaken as plaintiff apparently was, it cannot be concluded that he was prompted
solely by the desire to inflict needless and unjustified vexation on them. Considering the equities of the
situation, plaintiff having suffered a pecuniary loss which, while resulting from a fortuitous event,
perhaps would not have occurred at all had not defendant Federico Laureano borrowed his car, we, feel
that he is not to be penalized further by his mistaken view of the law in including them in his complaint.
Well-worth paraphrasing is the thought expressed in a United States Supreme Court decision as to the
existence of an abiding and fundamental principle that the expenses and annoyance of litigation form
part of the social burden of living in a society which seeks to attain social control through law. 8
WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it orders defendant
Federico Laureano to pay plaintiff the amount of P30,000.00 as damages plus the payment of costs, is
hereby reversed. It is affirmed insofar as it dismissed the case against the other two defendants,
Juanita Laureano and Aida de Laureano, and declared that no moral damages should be awarded the
parties. Without pronouncement as to costs.
G.R. No. 85691 July 31, 1990
BACHELOR EXPRESS, INCORPORATED, and CRESENCIO RIVERA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (Sixth Division), RICARDO BETER, SERGIA BETER,
TEOFILO RAUTRAUT and ZOETERA RAUTRAUT, respondents.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Court of Appeals which reversed and set aside the
order of the Regional Trial Court, Branch I, Butuan City dismissing the private respondents' complaint
for collection of "a sum of money" and finding the petitioners solidarily liable for damages in the total
amount of One Hundred Twenty Thousand Pesos (P120,000.00). The petitioners also question the
appellate court's resolution denying a motion for reconsideration.
On August 1, 1980, Bus No. 800 owned by Bachelor Express, Inc. and driven by Cresencio Rivera was
the situs of a stampede which resulted in the death of passengers Ornominio Beter and Narcisa
Rautraut.
The evidence shows that the bus came from Davao City on its way to Cagayan de Oro City passing
Butuan City; that while at Tabon-Tabon, Butuan City, the bus picked up a passenger; that about fifteen
(15) minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused
commotion and panic among the passengers; that when the bus stopped, passengers Ornominio Beter
and Narcisa Rautraut were found lying down the road, the former already dead as a result of head
injuries and the latter also suffering from severe injuries which caused her death later. The passenger
assailant alighted from the bus and ran toward the bushes but was killed by the police. Thereafter, the
heirs of Ornominio Beter and Narcisa Rautraut, private respondents herein (Ricardo Beter and Sergia
Beter are the parents of Ornominio while Teofilo Rautraut and Zoetera [should be Zotera] Rautraut are
the parents of Narcisa) filed a complaint for "sum of money" against Bachelor Express, Inc. its alleged
owner Samson Yasay and the driver Rivera.
In their answer, the petitioners denied liability for the death of Ornominio Beter and Narcisa Rautraut.
They alleged that ... the driver was able to transport his passengers safely to their respective places of
destination except Ornominio Beter and Narcisa Rautraut who jumped off the bus without the
knowledge and consent, much less, the fault of the driver and conductor and the defendants in this
case; the defendant corporation had exercised due diligence in the choice of its employees to avoid as
much as possible accidents; the incident on August 1, 1980 was not a traffic accident or vehicular
accident; it was an incident or event very much beyond the control of the defendants; defendants were
not parties to the incident complained of as it was an act of a third party who is not in any way
connected with the defendants and of which the latter have no control and supervision; ..." (Rollo, pp.
112-113).itc-asl
After due trial, the trial court issued an order dated August 8, 1985 dismissing the complaint.
Upon appeal however, the trial court's decision was reversed and set aside. The dispositive portion of
the decision of the Court of Appeals states:
WHEREFORE, the Decision appealed from is REVERSED and SET ASIDE and a new one entered
finding the appellees jointly and solidarily liable to pay the plaintiffs-appellants the following amounts:
1) To the heirs of Ornominio Beter, the amount of Seventy Five Thousand Pesos (P75,000.00) in loss of
earnings and support, moral damages, straight death indemnity and attorney's fees; and,
2) To the heirs of Narcisa Rautraut, the amount of Forty Five Thousand Pesos (P45,000.00) for straight
death indemnity, moral damages and attorney's fees. Costs against appellees. (Rollo, pp. 71-72)
The petitioners now pose the following questions
What was the proximate cause of the whole incident? Why were the passengers on board the bus
panicked (sic) and why were they shoving one another? Why did Narcisa Rautraut and Ornominio Beter
jump off from the running bus?
The petitioners opine that answers to these questions are material to arrive at "a fair, just and equitable
judgment." (Rollo, p. 5) They claim that the assailed decision is based on a misapprehension of facts
and its conclusion is grounded on speculation, surmises or conjectures.
As regards the proximate cause of the death of Ornominio Beter and Narcisa Rautraut, the petitioners
maintain that it was the act of the passenger who ran amuck and stabbed another passenger of the
bus. They contend that the stabbing incident triggered off the commotion and panic among the
passengers who pushed one another and that presumably out of fear and moved by that human instinct
of self-preservation Beter and Rautraut jumped off the bus while the bus was still running resulting in
their untimely death." (Rollo, p. 6) Under these circumstances, the petitioners asseverate that they were
not negligent in the performance of their duties and that the incident was completely and absolutely
attributable to a third person, the passenger who ran amuck, for without his criminal act, Beter and
Rautraut could not have been subjected to fear and shock which compelled them to jump off the
running bus. They argue that they should not be made liable for damages arising from acts of third
persons over whom they have no control or supervision.
Furthermore, the petitioners maintain that the driver of the bus, before, during and after the incident
was driving cautiously giving due regard to traffic rules, laws and regulations. The petitioners also argue
that they are not insurers of their passengers as ruled by the trial court.
The liability, if any, of the petitioners is anchored on culpa contractual or breach of contract of carriage.
The applicable provisions of law under the New Civil Code are as follows:
ART. 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both by land, water, or air, for compensation, offering
their services to the public.
ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
xxx xxx xxx
ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.
ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in Articles 1733 and 1755.
There is no question that Bachelor Express, Inc. is a common carrier. Hence, from the nature of its
business and for reasons of public policy Bachelor Express, Inc. is bound to carry its passengers safely
as far as human care and foresight can provide using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.
In the case at bar, Ornominio Beter and Narcisa Rautraut were passengers of a bus belonging to
petitioner Bachelor Express, Inc. and, while passengers of the bus, suffered injuries which caused their
death. Consequently, pursuant to Article 1756 of the Civil Code, petitioner Bachelor Express, Inc. is
presumed to have acted negligently unless it can prove that it had observed extraordinary diligence in
accordance with Articles 1733 and 1755 of the New Civil Code.
Bachelor Express, Inc. denies liability for the death of Beter and Rautraut on its posture that the death
of the said passengers was caused by a third person who was beyond its control and supervision. In
effect, the petitioner, in order to overcome the presumption of fault or negligence under the law, states
that the vehicular incident resulting in the death of passengers Beter and Rautraut was caused by force
majeure or caso fortuito over which the common carrier did not have any control.
Article 1174 of the present Civil Code states:
Except in cases expressly specified by law, or when it is otherwise declared by stipulations, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events
which could not be foreseen, or which though foreseen, were inevitable.
The above-mentioned provision was substantially copied from Article 1105 of the old Civil Code which
states"
No one shall be liable for events which could not be foreseen or which, even if foreseen, were
inevitable, with the exception of the cases in which the law expressly provides otherwise and those in
which the obligation itself imposes liability.
In the case of Lasam v. Smith (45 Phil. 657 [1924]), we defined "events" which cannot be foreseen and
which, having been foreseen, are inevitable in the following manner:
... The Spanish authorities regard the language employed as an effort to define the term 'caso fortuito'
and hold that the two expressions are synonymous. (Manresa Comentarios al Codigo Civil Espaol,
vol. 8, pp. 88 et seq.; Scaevola, Codigo Civil, vol. 19, pp. 526 et seq.)
The antecedent to Article 1105 is found in Law II, Title 33, Partida 7, which defines caso fortuito as
'occasion que acaese por aventura de que non se puede ante ver. E son estos, derrivamientos de
casas e fuego que enciende a so ora, e quebrantamiento de navio, fuerca de ladrones' (An event that
takes place by incident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers ...)
Escriche defines caso fortuito as an unexpected event or act of God which could neither be foreseen
nor resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsion, insurrections,
destruction of buildings by unforeseen accidents and other occurrences of a similar nature.
In discussing and analyzing the term caso fortuito the Enciclopedia Juridica Espaola says: 'In a legal
sense and, consequently, also in relation to contracts, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of the
debtor to comply with his obligation, must be independent of the human will. (2) It must be impossible to
foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to
avoid. (3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner. And (4) the obligor (debtor) must be free from any participation in the aggravation of
the injury resulting to the creditor. (5) Enciclopedia Juridica Espaola, 309)
As will be seen, these authorities agree that some extraordinary circumstance independent of the will of
the obligor or of his employees, is an essential element of a caso fortuito. ...
The running amuck of the passenger was the proximate cause of the incident as it triggered off a
commotion and panic among the passengers such that the passengers started running to the sole exit
shoving each other resulting in the falling off the bus by passengers Beter and Rautraut causing them
fatal injuries. The sudden act of the passenger who stabbed another passenger in the bus is within the
context of force majeure.
However, in order that a common carrier may be absolved from liability in case of force majeure, it is
not enough that the accident was caused by force majeure. The common carrier must still prove that it
was not negligent in causing the injuries resulting from such accident. Thus, as early as 1912, we ruled:
From all the foregoing, it is concluded that the defendant is not liable for the loss and damage of the
goods shipped on the lorcha Pilar by the Chinaman, Ong Bien Sip, inasmuch as such loss and damage
were the result of a fortuitous event or force majeure, and there was no negligence or lack of care and
diligence on the part of the defendant company or its agents. (Tan Chiong Sian v. Inchausti & Co., 22
Phil. 152 [1912]; Emphasis supplied).
This principle was reiterated in a more recent case, Batangas Laguna Tayabas Co. v. Intermediate
Appellate Court (167 SCRA 379 [1988]), wherein we ruled:
... [F]or their defense of force majeure or act of God to prosper the accident must be due to natural Q And these two persons whom you said alighted, where did they pass, the fron(t) door or rear door?
causes and exclusively without human intervention. (Emphasis supplied)
A Front door.
Therefore, the next question to be determined is whether or not the petitioner's common carrier
observed extraordinary diligence to safeguard the lives of its passengers. xxx xxx xxx

In this regard the trial court and the appellate court arrived at conflicting factual findings. (Tsn., p. 4, Aug. 8, 1984)

The trial court found the following facts: xxx xxx xxx

The parties presented conflicting evidence as to how the two deceased Narcisa Rautruat and
Ornominio Beter met their deaths.
However, from the evidence adduced by the plaintiffs, the Court could not see why the two deceased
could have fallen off the bus when their own witnesses testified that when the commotion ensued inside
the bus, the passengers pushed and shoved each other towards the door apparently in order to get off
from the bus through the door. But the passengers also could not pass through the door because
according to the evidence the door was locked.
On the other hand, the Court is inclined to give credence to the evidence adduced by the defendants
that when the commotion ensued inside the bus, the two deceased panicked and, in state of shock and
fear, they jumped off from the bus by passing through the window.
It is the prevailing rule and settled jurisprudence that transportation companies are not insurers of their
passengers. The evidence on record does not show that defendants' personnel were negligent in their
duties. The defendants' personnel have every right to accept passengers absent any manifestation of
violence or drunkenness. If and when such passengers harm other passengers without the knowledge
of the transportation company's personnel, the latter should not be faulted. (Rollo, pp. 46-47)
Q What happened after there was a commotion at the rear portion of the bus?
A When the commotion occurred, I stood up and I noticed that there was a passenger who was
sounded (sic). The conductor panicked because the passengers were shouting 'stop, stop'. The
conductor opened the bus.'
(Tsn. p. 3, August 8, 1984).
Accordingly, there is no reason to believe that the deceased passengers jumped from the window when
it was entirely possible for them to have alighted through the door. The lower court's reliance on the
testimony of Pedro Collango, as the conductor and employee of the common carrier, is unjustified, in
the light of the clear testimony of Leonila Cullano as the sole uninterested eyewitness of the entire
episode. Instead we find Pedro Collango's testimony to be infused by bias and fraught with
inconsistencies, if not notably unreliable for lack of veracity. On direct examination, he testified:
xxx xxx xxx
Q So what happened to the passengers inside your bus?

A thorough examination of the records, however, show that there are material facts ignored by the trial A Some of the passengers jumped out of the window.
court which were discussed by the appellate court to arrive at a different conclusion. These
COURT:
circumstances show that the petitioner common carrier was negligent in the provision of safety
precautions so that its passengers may be transported safely to their destinations. The appellate court Q While the bus was in motion?
states:
A Yes, your Honor, but the speed was slow because we have just picked up a passenger.
A critical eye must be accorded the lower court's conclusions of fact in its tersely written ratio decidendi.
The lower court concluded that the door of the bus was closed; secondly, the passengers, specifically Atty. Gambe:
the two deceased, jumped out of the window. The lower court therefore concluded that the defendant
common carrier is not liable for the death of the said passengers which it implicitly attributed to the Q You said that at the time of the incident the bus was running slow because you have just picked up a
unforeseen acts of the unidentified passenger who went amuck. passenger. Can you estimate what was your speed at that time?

There is nothing in the record to support the conclusion that the solitary door of the bus was locked as Atty. Calo:
to prevent the passengers from passing through. Leonila Cullano, testifying for the defense, clearly
stated that the conductor opened the door when the passengers were shouting that the bus stop while No basis, your Honor, he is neither a driver nor a conductor.
they were in a state of panic. Sergia Beter categorically stated that she actually saw her son fall from
the bus as the door was forced open by the force of the onrushing passengers. COURT:

Pedro Collango, on the other hand, testified that he shut the door after the last passenger had boarded Let the witness answer. Estimate only, the conductor experienced.
the bus. But he had quite conveniently neglected to say that when the passengers had panicked, he
himself panicked and had gone to open the door. Portions of the testimony of Leonila Cullano, quoted Witness:
below, are illuminating:
Not less than 30 to 40 miles.
xxx xxx xxx
COURT:
Q When you said the conductor opened the door, the door at the front or rear portion of the bus?
Kilometers or miles?
A Front door.
A Miles.
Atty. Gambe:
Q That is only your estimate by your experience?
A Yes, sir, estimate.
(Tsn., pp. 4-5, Oct. 17, 1983).
At such speed of not less than 30 to 40 miles ..., or about 48 to 65 kilometers per hour, the speed of the
bus could scarcely be considered slow considering that according to Collango himself, the bus had just
come from a full stop after picking a passenger (Tsn, p. 4, Id.) and that the bus was still on its second or
third gear (Tsn., p. 12, Id.).
In the light of the foregoing, the negligence of the common carrier, through its employees, consisted of
the lack of extraordinary diligence required of common carriers, in exercising vigilance and utmost care
of the safety of its passengers, exemplified by the driver's belated stop and the reckless opening of the
doors of the bus while the same was travelling at an appreciably fast speed. At the same time, the
common carrier itself acknowledged, through its administrative officer, Benjamin Granada, that the bus
was commissioned to travel and take on passengers and the public at large, while equipped with only a
solitary door for a bus its size and loading capacity, in contravention of rules and regulations provided
for under the Land Transportation and Traffic Code (RA 4136 as amended.) (Rollo, pp. 23-26)
Considering the factual findings of the Court of Appeals-the bus driver did not immediately stop the bus
at the height of the commotion; the bus was speeding from a full stop; the victims fell from the bus door
when it was opened or gave way while the bus was still running; the conductor panicked and blew his
whistle after people had already fallen off the bus; and the bus was not properly equipped with doors in
accordance with law-it is clear that the petitioners have failed to overcome the presumption of fault and
negligence found in the law governing common carriers.
The petitioners' argument that the petitioners "are not insurers of their passengers" deserves no merit in
view of the failure of the petitioners to prove that the deaths of the two passengers were exclusively due
to force majeureand not to the failure of the petitioners to observe extraordinary diligence in
transporting safely the passengers to their destinations as warranted by law. (See Batangas Laguna
Tayabas Co. v. Intermediate Appellate Court,supra).
The petitioners also contend that the private respondents failed to show to the court that they are the
parents of Ornominio Beter and Narcisa Rautraut respectively and therefore have no legal personality
to sue the petitioners. This argument deserves scant consideration. We find this argument a belated
attempt on the part of the petitioners to avoid liability for the deaths of Beter and Rautraut. The private
respondents were Identifiedas the parents of the victims by witnesses during the trial and the trial court
recognized them as such. The trial court dismissed the complaint solely on the ground that the
petitioners were not negligent.
Finally, the amount of damages awarded to the heirs of Beter and Rautraut by the appellate court is
supported by the evidence. The appellate court stated:
Ornominio Beter was 32 years of age at the time of his death, single, in good health and rendering
support and service to his mother. As far as Narcisa Rautraut is concerned, the only evidence adduced
is to the effect that at her death, she was 23 years of age, in good health and without visible means of
support.
In accordance with Art. 1764 in conjunction with Art. 2206 of the Civil Code, and established
jurisprudence, several factors may be considered in determining the award of damages, namely: 1) life
expectancy (considering the state of health of the deceased and the mortality tables are deemed
conclusive) and loss of earning capacity; (2) pecuniary loss, loss of support and service; and (3) moral
and mental suffering (Alcantara, et al. v. Surro, et al., 93 Phil. 470).
In the case of People v. Daniel (No. L-66551, April 25, 1985, 136 SCRA 92, at page 104), the High
Tribunal, reiterating the rule in Villa Rey Transit, Inc. v. Court of Appeals (31 SCRA 511), stated that the
amount of loss of earring capacity is based mainly on two factors, namely, (1) the number of years on
the basis of which the damages shall be computed; and (2) the rate at which the losses sustained by
the heirs should be fixed.
As the formula adopted in the case of Davila v. Philippine Air Lines, 49 SCRA 497, at the age of 30
one's normal life expectancy is 33-1/3 years based on the American Expectancy Table of Mortality (2/3
x 80-32).itc-asl By taking into account the pace and nature of the life of a carpenter, it is reasonable
to make allowances for these circumstances and reduce the life expectancy of the deceased Ornominio
Beter to 25 years (People v. Daniel, supra). To fix the rate of losses it must be noted that Art. 2206
refers to gross earnings less necessary living expenses of the deceased, in other words, only net
earnings are to be considered (People v. Daniel, supra; Villa Rey Transit, Inc. v. Court of
Appeals,supra).
Applying the foregoing rules with respect to Ornominio Beter, it is both just and reasonable, considering
his social standing and position, to fix the deductible, living and incidental expenses at the sum of Four
Hundred Pesos (P400.00) a month, or Four Thousand Eight Hundred Pesos (P4,800.00) annually. As
to his income, considering the irregular nature of the work of a daily wage carpenter which is seasonal,
it is safe to assume that he shall have work for twenty (20) days a month at Twenty Five Pesos
(P150,000.00) for twenty five years. Deducting therefrom his necessary expenses, his heirs would be
entitled to Thirty Thousand Pesos (P30,000.00) representing loss of support and service (P150,000.00
less P120,000.00). In addition, his heirs are entitled to Thirty Thousand Pesos (P30,000.00) as straight
death indemnity pursuant to Article 2206 (People v. Daniel, supra). For damages for their moral and
mental anguish, his heirs are entitled to the reasonable sum of P10,000.00 as an exception to the
general rule against moral damages in case of breach of contract rule Art. 2200 (Necesito v. Paras, 104
Phil. 75). As attorney's fees, Beter's heirs are entitled to P5,000.00. All in all, the plaintiff-appellants
Ricardo and Sergia Beter as heirs of their son Ornominio are entitled to an indemnity of Seventy Five
Thousand Pesos (P75,000.00).
In the case of Narcisa Rautraut, her heirs are entitled to a straight death indemnity of Thirty Thousand
Pesos (P30,000.00), to moral damages in the amount of Ten Thousand Pesos (P10,000.00) and Five
Thousand Pesos (P5,000.00) as attorney's fees, or a total of Forty Five Thousand Pesos (P45,000.00)
as total indemnity for her death in the absence of any evidence that she had visible means of support.
(Rollo, pp. 30-31)
WHEREFORE, the instant petition is DISMISSED. The questioned decision dated May 19, 1988 and
the resolution dated August 1, 1988 of the Court of Appeals are AFFIRMED.
SO ORDERED.
G.R. No. L-42926 September 13, 1985
PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO
VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.
MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of petitioners' respective children after
the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and
which we find supported by the record, read as follows:
When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early morning of May 15,
1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-
year old boy, Mario Marlon Vasquez, among her passengers. The MV "Pioneer Cebu" encountered
typhoon "Klaring" and struck a reef on the southern part of Malapascua Island, located somewhere
north of the island of Cebu and subsequently sunk. The aforementioned passengers were unheard from
since then.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez; plaintiffs Cleto
Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and
Maxima Cainay are the parents of the child, Mario Marlon Vasquez. They seek the recovery of
damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said
voyage.
At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez, Filipinas Bagaipo
and Mario Marlon Vasquez, and the fact of the sinking of the MV "Pioneer Cebu". The issues of the
case were limited to the defenses alleged by the defendant that the sinking of the vessel was caused
by force majeure, and that the defendant's liability had been extinguished by the total loss of the vessel.
The evidence on record as to the circumstances of the last voyage of the MV "Pioneer Cebu" came
mainly, if not exclusively, from the defendant. The MV "Pioneer Cebu" was owned and operated by the
defendant and used in the transportation of goods and passengers in the inter-island shipping.
Scheduled to leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the
following day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322) including
the crew. It undertook the said voyage on a special permit issued by the Collector of Customs inasmuch
as, upon inspection, it was found to be without an emergency electrical power system. The special
permit authorized the vessel to carry only two hundred sixty (260) passengers due to the said
deficiency and for lack of safety devices for 322 passengers (Exh. 2). A headcount was made of the
passengers on board, resulting on the tallying of 168 adults and 20 minors, although the passengers
manifest only listed 106 passengers. It has been admitted, however, that the headcount is not reliable
inasmuch as it was only done by one man on board the vessel.
When the vessel left Manila, its officers were already aware of the typhoon Klaring building up
somewhere in Mindanao. There being no typhoon signals on the route from Manila to Cebu, and the
vessel having been cleared by the Customs authorities, the MV "Pioneer Cebu" left on its voyage to
Cebu despite the typhoon. When it reached Romblon Island, it was decided not to seek shelter thereat,
inasmuch as the weather condition was still good. After passing Romblon and while near Jintotolo
island, the barometer still indicated the existence of good weather condition continued until the vessel
approached Tanguingui island. Upon passing the latter island, however, the weather suddenly changed
and heavy rains felt Fearing that due to zero visibility, the vessel might hit Chocolate island group, the
captain ordered a reversal of the course so that the vessel could 'weather out' the typhoon by facing the
winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966, the vessel struck
a reef near Malapascua island, sustained leaks and eventually sunk, bringing with her Captain Floro
Yap who was in command of the vessel.
Due to the loss of their children, petitioners sued for damages before the Court of First Instance of
Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the extinction
of its liability by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay:
(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss of earning
capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and P10,000.00 for moral damages;
(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss of earning capacity
of deceased Filipinas Bagaipo, and P10,000.00 for moral damages; and
(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of moral damages
by reason of the death of Mario Marlon Vasquez.
On appeal, respondent Court reversed the aforementioned judgment and absolved private respondent
from any and all liability.
Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.
The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:
... It is an admitted fact that even before the vessel left on its last voyage, its officers and crew were
already aware of the typhoon brewing somewhere in the same general direction to which the vessel
was going. The crew of the vessel took a calculated risk when it proceeded despite the typhoon
advisory. This is quite evident from the fact that the officers of the vessel had to conduct conferences
amongst themselves to decide whether or not to proceed. The crew assumed a greater risk when,
instead of seeking shelter in Romblon and other islands the vessel passed en route, they decided to
take a change on the expected continuation of the good weather the vessel was encountering, and the
possibility that the typhoon would veer to some other directions. The eagerness of the crew of the
vessel to proceed on its voyage and to arrive at its destination is readily understandable. It is
undeniably lamentable, however, that they did so at the risk of the lives of the passengers on board.
Contrariwise, respondent Appellate Court believed that the calamity was caused solely and proximately
by fortuitous event which not even extraordinary diligence of the highest degree could have guarded
against; and that there was no negligence on the part of the common carrier in the discharge of its
duties.
Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso fortuito that
would exempt a person from responsibility, it is necessary that (1) the event must be independent of the
human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to
the creditor." 1 In the language of the law, the event must have been impossible to foresee, or if it could
be foreseen, must have been impossible to avoid. 2 There must be an entire exclusion of human
agency from the cause of injury or loss. 3
Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of
typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed all
the cargo in the hold before sailing in anticipation of strong winds and rough waters. 4 They proceeded
on their way, as did other vessels that day. Upon reaching Romblon, they received the weather report
that the typhoon was 154 kms. east southeast of Tacloban and was moving west northwest. 5 Since
they were still not within the radius of the typhoon and the weather was clear, they deliberated and
decided to proceed with the course. At Jintotolo Island, the typhoon was already reported to be
reaching the mainland of Samar. 6 They still decided to proceed noting that the weather was still "good"
although, according to the Chief Forecaster of the Weather Bureau, they were already within the
typhoon zone. 7 At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the typhoon was in an area
quite close to Catbalogan, placing Tanguingui also within the typhoon zone. Despite knowledge of that
fact, they again decided to proceed relying on the forecast that the typhoon would weaken upon
crossing the mainland of Samar. 8 After about half an hour of navigation towards Chocolate Island,
there was a sudden fall of the barometer accompanied by heavy downpour, big waves, and zero
visibility. The Captain of the vessel decided to reverse course and face the waves in the open sea but
because the visibility did not improve they were in total darkness and, as a consequence, the vessel ran
aground a reef and sank on May 16, 1966 around 12:45 P.M. near Malapascua Island somewhere north
of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been
kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and
crew were well aware of the risk they were taking as they hopped from island to island from Romblon
up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of very
cautious persons, 9 they decided to take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the safety of the passengers transported by
them with due regard for an circumstances 10 and unnecessarily exposed the vessel and passengers to
the tragic mishap. They failed to overcome that presumption of fault or negligence that arises in cases
of death or injuries to passengers. 11
While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as "moot and academic," the
captain having "lived up to the true tradition of the profession." While we are bound by the Board's
factual findings, we disagree with its conclusion since it obviously had not taken into account the legal
responsibility of a common carrier towards the safety of the passengers involved.
With respect to private respondent's submission that the total loss of the vessel extinguished its liability
pursuant to Article 587 of the Code of Commerce 12 as construed in Yangco vs. Laserna, 73 Phil. 330
[1941], suffice it to state that even in the cited case, it was held that the liability of a shipowner is limited
to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its
insurance answers for the damages that a shipowner or agent may be held liable for by reason of the
death of its passengers.
WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of
First Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.
SO ORDERED.
G.R. No. 126204 November 20, 2001
NATIONAL POWER CORPORATION, petitioner, vs.
PHILIPP BROTHERS OCEANIC, INC., respondent.
SANDOVAL-GUTIERREZ, J.:
Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that
damages are thereby suffered by another will not make him liable.1
This principle finds useful application to the present case.
Before us is a petition for review of the Decision 2 dated August 27, 1996 of the Court of Appeals
affirming in toto the Decision 3 dated January 16, 1992 of the Regional Trial Court, Branch 57, Makati
City.
The facts are:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply
and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in
Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to
participate as one of the bidders. After the public bidding was conducted, PHIBRO's bid was accepted.
NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO
on July 15, 1987.The "Bidding Terms and Specifications"4 provide for the manner of shipment of coals,
thus:
"SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall arrange and provide gearless bulk
carrier for the shipment of coal to arrive at discharging port on or before thirty (30) calendar days after
receipt of the Letter of Credit by the SELLER or its nominee as per Section XIV hereof to meet the
vessel arrival schedules at Calaca, Batangas, Philippines as follows:
60,000 +/ - 10 % July 20, 1987
60,000 +/ - 10% September 4, 1987"5
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague
Australia, the shipment's point of origin, which could seriously hamper PHIBRO's ability to supply the
needed coal.6 From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in
Australia, particularly informing the latter that the ship owners therein are not willing to load cargo
unless a "strike-free" clause is incorporated in the charter party or the contract of carriage. 7 In order to
hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a
"strike-free" clause. NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit.
Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed
upon by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca
thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987,
NAPOCOR disapproved PHIBRO's application for pre-qualification to bid for not meeting the minimum
requirements.8 Upon further inquiry, PHIBRO found that the real reason for the disapproval was its
purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first
coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR
with the Regional Trial Court, Branch 57, Makati City.9 In its complaint, PHIBRO alleged that
NAPOCOR's act of disqualifying it in the October 1987 bidding and in all subsequent biddings was
tainted with malice and bad faith. PHIBRO prayed for actual, moral and exemplary damages and
attorney's fees.
In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the
delay in the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had
already ceased. And, even assuming that the strikes were still ongoing, PHIBRO should have
shouldered the burden of a "strike-free" clause because their contract was "C and F Calaca, Batangas,
Philippines," meaning, the cost and freight from the point of origin until the point of destination would be
for the account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver
the coal on time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed
for actual damages in the amount of P12,436,185.73, representing the increase in the price of coal, and
a claim of P500,000.00 as litigation expenses.10
Thereafter, trial on the merits ensued.
On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive portion of
which reads:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic Inc.
(PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering the said
defendant NAPOCOR:
1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power Corporation's
list of accredited bidders and allow PHIBRO to participate in any and all future tenders of National
Power Corporation for the supply and delivery of imported steam coal;
2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO);
a. The peso equivalent at the time of payment of $864,000 as actual damages,
b. The peso equivalent at the time of payment of $100,000 as moral damages;
c. The peso equivalent at the time of payment of $50,000 as exemplary damages;
d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for expenses, cost of
litigation and attorney's fees;
3. To pay the costs of suit;
4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.
SO ORDERED."11
Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of Appeals. On
August 27, 1996, the Court of Appeals rendered a Decision affirming in toto the Decision of the
Regional Trial Court. It ratiocinated that:
"There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was
delayed, the delay was in fact caused by a) Napocor's own delay in opening a workable letter of credit;
and b) the strikes which plaqued the Australian coal industry from the first week of July to the third week
of September 1987. Strikes are included in the definition of force majeure in Section XVII of the Bidding
Terms and Specifications, (supra), so Phibro is not liable for any delay caused thereby.
Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected
thirty (30) days from Napocor's opening of a confirmed and workable letter of credit. Napocor was only
able to do so on August 6, 1987.
By that time, Australia's coal industry was in the middle of a seething controversy and unrest,
occasioned by strikes, overtime bans, mine stoppages. The origin, the scope and the effects of this
industrial unrest are lucidly described in the uncontroverted testimony of James Archibald, an employee
of Phibro and member of the Export Committee of the Australian Coal Association during the time these
events transpired.
xxx xxx xxx
The records also attest that Phibro periodically informed Napocor of these developments as early as
July 1, 1987, even before the bid was approved. Yet, Napocor did not forthwith open the letter of credit
in order to avoid delay which might be caused by the strikes and their after-effects.
"Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications
(supra). The renowned civilist, Prof. Arturo Tolentino, defines force majeure as "an event which takes
place by accident and could not have been foreseen." (Civil Code of the Philippines, Volume IV,
Obligations and Contracts, 126, [1991]) He further states:
"Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes,
storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an armed invasion, attack by
bandits, governmental prohibitions, robbery, etc."
Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In order that acts
of man such as a strike, may constitute fortuitous event, it is necessary that they have the force of an
imposition which the debtor could not have resisted. He cites a parallel example in the case
of Philippine National Bank v. Court of Appeals, 94 SCRA 357 (1979), wherein the Supreme Court said
that the outbreak of war which prevents performance exempts a party from liability.
Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first
week of July to the third week of September, 1987, exempted Phibro from the effects of delay of the
delivery of the shipment of coal."12
Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of Appeals the
following errors:
I floods, wars, typhoons, storms, epidemics and quarantine restrictions."
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO's
delay in the delivery of imported coal was due to NAPOCOR's alleged delay in opening a letter of credit
and to forcemajeure, and not to PHIBRO's own deliberate acts and faults."13
II
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that
NAPOCOR acted maliciously and unjustifiably in disqualifying PHIBRO from participating in the
December 8, 1987 and future biddings for the supply of imported coal despite the existence of valid
grounds therefor such as serious impairment of its track record."14
III
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO
was entitled to injunctive relief, to actual or compensatory, moral and exemplary damages, attorney's
fees and litigation expenses despite the clear absence of legal and factual bases for such award." 15
IV
"Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any liability for
damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to deliver the contracted
imported coal within the stipulated period."16
V
"Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCOR's counterclaims for
damages and litigation expenses."17
It is axiomatic that only questions of law, not questions of fact, may be raised before this Court in a
petition for review under Rule 45 of the Rules of Court. 18 The findings of facts of the Court of Appeals
are conclusive and binding on this Court 19 and they carry even more weight when the said court affirms
the factual findings of the trial court. 20 Stated differently, the findings of the Court of .Appeals, by itself,
which are supported by substantial evidence, are almost beyond the power of review by this Court. 21
With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the factual issues
raised by petitioner. The existence of strikes in Australia having been duly established in the lower
courts, we are left only with the burden of determining whether or not NAPOCOR acted wrongfully or
with bad faith in disqualifying PHIBRO from participating in the subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial Court's decision exonerating PHIBRO
from any liability for damages to NAPOCOR as it was clearly established from the evidence, testimonial
and documentary, that what prevented PHIBRO from complying with its obligation under the July 1987
contract was the industrial disputes which besieged Australia during that time. Extant in our Civil Code
is the rule that no person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.22 This means that when an obligor is unable to fulfill his obligation
because of a fortuitous event or force majeure, he cannot be held liable for damages for non-
performance.23
In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed
in Section XVII of the "Bidding Terms and Specifications"24 that "neither seller (PHIBRO) nor buyer
(NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than
the payment of money due, if any such delay or failure is due to Force Majeure." Specifically, they
defined force majeure as "any disabling cause beyond the control of and without fault or negligence of
the party, which causes may include but are not restricted to Acts of God or of the public enemy; acts of
the Government in either its sovereign or contractual capacity; governmental restrictions; strikes, fires,
The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no
reason to rule otherwise.
However, proceeding from the premise that PHIBRO was prevented by force majeure from complying
with its obligation, does it necessarily follow that NAPOCOR acted unjustly, capriciously, and unfairly in
disapproving PHIBRO's application for pre-qualification to bid?
First, it must be stressed that NAPOCOR was not bound under any contract to approve PHIBRO's pre-
qualification requirements. In fact, NAPOCOR had expressly reserved its right to reject bids. The
Instruction to Bidders found in the "Post-Qualification Documents/Specifications for the Supply and
Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas
Philippines,"25 is explicit, thus:
"IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS
NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the bids
received.The right is also reserved to reject the bids of any bidder who has previously failed to properly
perform or complete on time any and all contracts for delivery of coal or any supply undertaken by a
bidder."26(Emphasis supplied)
This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that matter
may be rejected on a mere technicality.27 And where the government as advertiser, availing itself of that
right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right
to dispute that choice unless an unfairness or injustice is shown. Accordingly, a bidder has no ground of
action to compel the Government to award the contract in his favor, nor to compel it to accept his bid.
Even the lowest bid or any bid may be rejected. 28 In Celeste v. Court of Appeals,29 we had the occasion
to rule:
"Moreover, paragraph 15 of the Instructions to Bidders states that 'the Government hereby reserves the
right to reject any or all bids submitted.' In the case of A.C. Esguerra and Sons v. Aytona, 4 SCRA 1245,
1249 (1962), we held:
'x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect that the
bidders shall be subject to the right of the government to reject any and all bids subject to its discretion.
Here the government has made its choice, and unless an unfairness or injustice is shown, the losing
bidders have no cause to complain, nor right to dispute that choice.'
Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in
evaluating the bids, we rule that the private respondents are not entitled to damages representing lost
profits." (Emphasis supplied)
Verily, a reservation of the government of its right to reject any bid, generally vests in the authorities a
wide discretion as to who is the best and most advantageous bidder. The exercise of such discretion
involves inquiry, investigation, comparison, deliberation and decision, which are quasi-judicial functions,
and when honestly exercised, may not be reviewed by the court. 30 In Bureau Veritas v. Office of the
President,31 we decreed:
"The discretion to accept or reject a bid and award contracts is vested in the Government agencies
entrusted with that function. The discretion given to the authorities on this matter is of such wide
latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]) x x x. The exercise of this discretion is a
policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation.
This task can best be discharged by the Government agencies concerned, not by the Courts. The role
of the Courts is to ascertain whether a branch or instrumentality of the Government has transgresses its
constitutional boundaries. But the Courts will not interfere with executive or legislative discretion
exercised within those boundaries. Otherwise, it strays into the realm of policy decision-making. x x x."
(Emphasis supplied)
Owing to the discretionary character of the right involved in this case, the propriety of NAPOCOR's act
should therefore be judged on the basis of the general principles regulating human relations, the
forefront provision of which is Article 19 of the Civil Code which provides that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith."32Accordingly, a person will be protected only when he acts in the
legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he
acts with negligence or abuse.33
Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public bidding?
We rule in the negative.
In practice, courts, in the sound exercise of their discretion, will have to determine under all the facts
and circumstances when the exercise of a right is unjust, or when there has been an abuse of right.34
We went over the record of the case with painstaking solicitude and we are convinced that NAPOCOR's
act of disapproving PHIBRO's application for pre-qualification to bid was without any intent to injure or a
purposive motive to perpetrate damage. Apparently, NAPOCOR acted on the strong conviction that
PHIBRO had a "seriously-impaired" track record. NAPOCOR cannot be faulted from believing so. At
this juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation to Bid,
i.e., October 1987, PHIBRO had not yet delivered the first shipment of coal under the July 1987
contract, which was due on or before September 5, 1987. Naturally, NAPOCOR is justified in
entertaining doubts on PHIBRO's qualification or capability to assume an obligation under a new
contract.
Moreover, PHIBRO's actuation in 1987 raised doubts as to the real situation of the coal industry in
Australia. It appears from the records that when NAPOCOR was constrained to consider an offer from
another coal supplier (ASEA) at a price of US$33.44 per metric ton, PHIBRO unexpectedly offered the
immediate delivery of 60,000 metric tons of Ulan steam coal at US$31.00 per metric ton for arrival at
Calaca, Batangas on September 20-21, 1987."35 Of course, NAPOCOR had reason to ponder how
come PHIBRO could assure the immediate delivery of 60,000 metric tons of coal from the same source
to arrive at Calaca not later than September 20/21, 1987 but it could not deliver the coal it had
undertaken under its contract?
Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to
contracts, is that "the concurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner." 36 Faced with the above circumstance, NAPOCOR is justified in
assuming that, may be, there was really no fortuitous event or force majeure which could render it
impossible for PHIBRO to effect the delivery of coal. Correspondingly, it is also justified in treating
PHIBRO's failure to deliver a serious impairment of its track record. That the trial court, thereafter, found
PHIBRO's unexpected offer actually a result of its desire to minimize losses on the part of NAPOCOR is
inconsequential. In determining the existence of good faith, the yardstick is the frame of mind of the
actor at the time he committed the act, disregarding actualities or facts outside his knowledge. We
cannot fault NAPOCOR if it mistook PHIBRO's unexpected offer a mere attempt on the latter's part to
undercut ASEA or an indication of PHIBRO's inconsistency. The circumstances warrant such
contemplation.
That NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded is manifest
from its letters37 reminding PHIBRO that it was bound to deliver the coal within 30 days from its
(PHIBRO's) receipt of the Letter of Credit, otherwise it would be constrained to take legal action. The
same honest belief can be deduced from NAPOCOR's Board Resolution, thus:
"On the legal aspect, Management stressed that failure of PBO to deliver under the contract makes
them liable for damages, considering that the reasons invoked were not valid. The measure of the
damages will be limited to actual and compensatory damages. However, it was reported that Philipp
Brothers advised they would like to have continuous business relation with NPC so they are willing to sit
down or even proposed that the case be submitted to the Department of Justice as to avoid a court
action or arbitration.
xxx xxx xxx
On the technical-economic aspect, Management claims that if PBO delivers in November 1987 and
January 1988, there are some advantages. If PBO reacts to any legal action and fails to deliver, the
options are: one, to use 100% Semirara and second, to go into urgent coal order. The first option will
result in a 75 MW derating and oil will be needed as supplement. We will stand to lose around P30 M.
On the other hand, if NPC goes into an urgent coal order, there will be an additional expense of
$786,000 or P16.11 M, considering the price of the latest purchase with ASEA. On both points,
reliability is decreased."38
The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification documents
is to ensure that only those "responsible" and "qualified" bidders could bid and be awarded with
government contracts. It bears stressing that the award of a contract is measured not solely by the
smallest amount of bid for its performance, but also by the "responsibility" of the bidder. Consequently,
the integrity, honesty, and trustworthiness of the bidder is to be considered. An awarding official is
justified in considering a bidder not qualified or not responsible if he has previously defrauded the public
in such contracts or if, on the evidence before him, the official bona fide believes the bidder has
committed such fraud, despite the fact that there is yet no judicial determination to that
effect.39 Otherwise stated, if the awarding body bona fide believes that a bidder has seriously impaired
its track record because of a particular conduct, it is justified in disqualifying the bidder. This policy is
necessary to protect the interest of the awarding body against irresponsible bidders.
Thus, one who acted pursuant to the sincere belief that another willfully committed an act prejudicial to
the interest of the government cannot be considered to have acted in bad faith. Bad faith has always
been a question of intention. It is that corrupt motive that operates in the mind. As understood in law, it
contemplates a state of mind affirmatively operating with furtive design or with some motive of self-
interest or ill-will or for ulterior purpose.40 While confined in the realm of thought, its presence may be
ascertained through the party's actuation or through circumstantial evidence. 41 The circumstances
under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention to
cause damage to the latter. The measure it adopted was one of self-protection. Consequently, we
cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be made liable for
actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court
computed what could have been the profits of PHIBRO had NAPOCOR allowed it to participate in the
subsequent public bidding. It ruled that "PHIBRO would have won the tenders for the supply of about
960,000 metric tons out of at least 1,200,000 metric tons" from the public bidding of December 1987 to
1990. We quote the trial court's ruling, thus:
". . . PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning December
1987 to 1990, for the supply and delivery of imported coal with a total volume of about 1,200,000 metric
tons valued at no less than US$32 Million. (Exhs. "AA," "AA-1-1," to "AA-2"). The price of imported coal
for delivery in 1988 was quoted in June 1988 by bidders at US$41.35 to US$43.95 per metric ton (Exh.
"JJ"); in September 1988 at US$41.50 to US$49.50 per metric ton (Exh. "J-1"); in November 1988 at
US$39.00 to US$48.50 per metric ton (Exh. "J-2") and for the 1989 deliveries, at US$44.35 to
US$47.35 per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September 1990
(Exh. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery of about
960,000 metric tons of coal out of at least 1,200,000 metric tons awarded during said period based on
its proven track record of 80%. The Court, therefore finds that as a result of its disqualification, PHIBRO
suffered damages equivalent to its standard 3% margin in 960,000 metric tons of coal at the most
conservative price of US$30,000 per metric ton, or the total of US$864,000 which PHIBRO would have
earned had it been allowed to participate in biddings in which it was disqualified and in subsequent
tenders for supply and delivery of imported coal."
We find this to be erroneous.
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof
but must actually be proven with reasonable degree of certainty, premised upon competent proof or
best evidence obtainable of the actual amount thereof. 42 A court cannot merely rely on speculations,
conjectures, or guesswork as to the fact and amount of damages. Thus, while indemnification for
damages shall comprehend not only the value of the loss suffered, but also that of the profits which the
obligee failed to obtain,43 it is imperative that the basis of the alleged unearned profits is not too
speculative and conjectural as to show the actual damages which may be suffered on a future period.
In Pantranco North Express, Inc. v. Court of Appeals,44 this Court denied the plaintiff's claim for actual
damages which was premised on a contract he was about to negotiate on the ground that there was
still the requisite public bidding to be complied with, thus:
"As to the alleged contract he was about to negotiate with Minister Hipolito, there is no showing that the
same has been awarded to him. If Tandoc was about to negotiate a contract with Minister Hipolito, there
was no assurance that the former would get it or that the latter would award the contract to him since
there was the requisite public bidding. The claimed loss of profit arising out of that alleged contract
which was still to be negotiated is a mere expectancy. Tandoc's claim that he could have earned P2
million in profits is highly speculative and no concrete evidence was presented to prove the same. The
only unearned income to which Tandoc is entitled to from the evidence presented is that for the one-
month period, during which his business was interrupted, which is P6,125.00, considering that his
annual net income was P73,500.00."
In Lufthansa German Airlines v. Court of Appeals,45 this Court likewise disallowed the trial court's award
of actual damages for unrealized profits in the amount of US$75,000.00 for being highly speculative. It
was held that "the realization of profits by respondent . . . was not a certainty, but depended on a
number of factors, foremost of which was his ability to invite investors and to win the bid." This Court
went further saying that actual or compensatory damages cannot be presumed, but must be duly
proved, and proved with reasonable degree of certainty.
And in National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's claim for
unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's) claims for unrealized
commissions, and that these claims have been transmuted into judicial admissions, these admissions
cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which
necessarily and inherently include the reservation by the NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith.
Moreover, moral damages are not, as a general rule, granted to a corporation. 47 While it is true that
besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation,
unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual
has, and besides, it is inherently impossible for a corporation to suffer mental anguish. 48 In LBC
Express, Inc. v. Court of Appeals,49 we ruled:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in legal contemplation, has no feelings,
no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows,
and griefs of life all of which cannot be suffered by respondent bank as an artificial person."
Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court may
consider the question of whether or not exemplary damages should be awarded, the plaintiff must show
that he is entitled to moral, temperate, or compensatory damages.
NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding PHIBRO the
amount of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded
attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross
and evident bad faith.50 This cannot be said of the case at bar. NAPOCOR is justified in resisting
PHIBRO's claim for damages. As a matter of fact, we partially grant the prayer of NAPOCOR as we find
that it did not act in bad faith in disapproving PHIBRO's pre-qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party simply because the
judgment is favorable to him, for it may amount to imposing a premium on the right to redress
grievances in court. We adopt the same policy with respect to the expenses of litigation. A winning party
may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable
claims or defendant's unreasonable refusal to his demands, was compelled to incur said expenditures.
Evidently, the facts of this case do not warrant the granting of such litigation expenses to PHIBRO.
At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO another
opportunity to participate in future public bidding. As earlier mentioned, the delay on its part was due to
a fortuitous event.
But before we dispose of this case, we take this occasion to remind PHIBRO of the indispensability of
coal to a coal-fired thermal plant. With households and businesses being entirely dependent on the
electricity supplied by NAPOCOR, the delivery of coal cannot be venturesome. Indeed, public interest
demands that one who offers to deliver coal at an appointed time must give a reasonable assurance
that it can carry through. With the deleterious possible consequences that may result from failure to
deliver the needed coal, we believe there is greater strain of commitment in this kind of obligation.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August 27, 1996
is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and exemplary damages,
reimbursement for expenses, cost of litigation and attorney's fees, and costs of suit, is DELETED.
SO ORDERED.
G.R. No. 171035 August 24, 2009
WILLIAM ONG GENATO, Petitioner,
vs.
BENJAMIN BAYHON, MELANIE BAYHON, BENJAMIN BAYHON, JR., BRENDA BAYHON, ALINA
BAYHON-CAMPOS, IRENE BAYHON-TOLOSA, and the minor GINO BAYHON, as represented
herein by his natural mother as guardian-ad-litem, JESUSITA M. BAYHON, Respondents.
DECISION
PUNO, CJ.:
At bar is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals dated
September 16, 20051 and Resolution denying the petitioners motion for reconsideration issued on
January 6, 2006.
This is a consolidated case stemming from two civil cases filed before the Regional Trial Court (RTC)
Civil Case No. Q-90-7012 and Civil Case No. Q-90-7551.
Civil Case No. Q-90-7012
On October 18, 1990, respondents Benjamin M. Bayhon, Melanie Bayhon, Benjamin Bayhon Jr.,
Brenda Bayhon, Alina Bayhon-Campos, Irene Bayhon-Tolosa and the minor Gino Bayhon, as
represented by his mother Jesusita M. Bayhon, filed an action before the RTC, Quezon City, Branch 76,
docketed as Civil Case No. Q-90-7012. In their Complaint, respondents sought the declaration of nullity
of a dacion en pago allegedly executed by respondent Benjamin Bayhon in favor of petitioner William
Ong Genato.2
Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the petitioner a loan
amounting to PhP 1,000,000.00;3 that to cover the loan, he executed a Deed of Real Estate Mortgage
over the property covered by Transfer Certificate of Title (TCT) No. 38052; that, however, the execution
of the Deed of Real Estate Mortgage was conditioned upon the personal assurance of the petitioner
that the said instrument is only a private memorandum of indebtedness and that it would neither be
notarized nor enforced according to its tenor.4
Respondent further alleged that he filed a separate proceeding for the reconstitution of TCT No. 38052
before the RTC, Quezon City, Branch 87. 5 Petitioner William Ong Genato filed an Answer in
Intervention in the said proceeding and attached a copy of an alleged dacion en pago covering said
lot.6 Respondent assailed the dacion en pago as a forgery alleging that neither he nor his wife, who had
died 3 years earlier, had executed it.7
In his Answer, petitioner Genato denied the claim of the respondent regarding the death of the latters
wife.8 He alleged that on the date that the real estate mortgage was to be signed, respondent
introduced to him a woman as his wife.9 He alleged that the respondent signed the dacion en pago and
that the execution of the instrument was above-board.10
Civil Case No. Q-90-7551
On December 20, 1990, petitioner William Ong Genato filed Civil Case No. Q-90-7551, an action for
specific performance, before the RTC, Quezon City, Branch 79. In his Complaint, petitioner alleged that
respondent obtained a loan from him in the amount of PhP 1,000,000.00. Petitioner alleged further that
respondent failed to pay the loan and executed on October 21, 1989 a dacion en pago in favor of the
petitioner. The dacion en pagowas inscribed and recorded with the Registry of Deeds of Quezon City.11
Petitioner further averred that despite demands, respondent refused to execute the requisite
documents to transfer to him the ownership of the lot subject of the dacion en pago. Petitioner
prayed, inter alia, for the court to order the respondent to execute the final deed of sale and transfer of
possession of the said lot.12
Decision of the Consolidated Cases
The two cases were consolidated and transferred to the RTC, Quezon City, Branch 215. On October 9,
1997, the trial court rendered its Decision. It found that respondent obtained a loan in the amount of
PhP 1,000,000.00 from the petitioner on July 3, 1989. The terms of the loan were interest payment at
5% per month with an additional 3% penalty in case of nonpayment. 13
With respect to the dacion en pago, the trial court held that the parties have novated the agreement. 14 It
deduced the novation from the subsequent payments made by the respondent to the petitioner. Of the
principal amount, the sum of PhP 102,870.00 had been paid: PhP 27,870.00 on March 23, 1990, PhP
55,000.00 on 26 March 1990 and PhP 20,000.00 on 16 November 1990.15 All payments were made
after the purported execution of the dacion en pago.
The trial court likewise found that at the time of the execution of the real estate mortgage, the wife of
respondent, Amparo Mercado, was already dead. It held that the property covered by TCT No. 38052
was owned in common by the respondents and not by respondent Benjamin Bayhon alone. It
concluded that the said lot could not have been validly mortgaged by the respondent alone; the deed of
mortgage was not enforceable and only served as evidence of the obligation of the respondent.16
In sum, the trial court upheld the respondents liability to the petitioner and ordered the latter to pay the
sum of Php 5,647,130.00.17 This amount included the principal, the stipulated interest of 5% per month,
and the penalty; and, was calculated from the date of demand until the date the RTC rendered its
judgment.
Appeal to the Court of Appeals
Respondents appealed before the Court of Appeals. On March 28, 2002, respondent Benjamin Bayhon
died while the case was still pending decision.18 On September 16, 2005, the Court of Appeals rendered
a decision reversing the trial court.
The Court of Appeals held that the real estate mortgage and the dacion en pago were both void. The
appellate court ruled that at the time the real estate mortgage and the dacion en pago were executed,
or on July 3, 1989 and October 21, 1989, respectively, the wife of respondent Benjamin Bayhon was
already dead.19 Thus, she could not have participated in the execution of the two documents. The
appellate court struck down both thedacion en pago and the real estate mortgage as being simulated or
fictitious contracts pursuant to Article 1409 of the Civil Code.20
The Court of Appeals held further that while the principal obligation is valid, the death of respondent
Benjamin Bayhon extinguished it. 21 The heirs could not be ordered to pay the debts left by the
deceased.22 Based on the foregoing, the Court of Appeals dismissed petitioners appeal. Petitioners
motion for reconsideration was denied in a resolution dated January 6, 2006.23
Petition for Review
Petitioner now comes before this Court assailing the decision of the Court of Appeals and raising the
following issues:
Whether or not Benjamin Bayhon is liable to Mr. Genato in the amount of Php 5,647,130.00 in principal
and interest as of October 3, 1997 and 5% monthly interest thereafter until the account shall have been
fully paid.24
The Court of Appeals erred in declaring the Real Estate Mortgage dated July 3, 1989 and the Dacion
en Pago dated October 21, 1989, null and void.25
We shall first tackle the nullity of the dacion en pago.
We affirm the ruling of the appellate court that the subject dacion en pago is a simulated or fictitious
contract, and hence void. The evidence shows that at the time it was allegedly signed by the wife of the
respondent, his wife was already dead. This finding of fact cannot be reversed.
We now go to the ruling of the appellate court extinguishing the obligation of respondent. As a general
rule, obligations derived from a contract are transmissible. Article 1311, par.1 of the Civil Code provides:
Contracts take effect only between the parties, their assigns and heirs, except in case where the rights
and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the
decedent.1avvphi1
In Estate of Hemady v. Luzon Surety Co., Inc., 26 the Court, through Justice JBL Reyes, held: While in
our successional system the responsibility of the heirs for the debts of their decedent cannot exceed
the value of the inheritance they receive from him, the principle remains intact that these heirs succeed
not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the New Civil
Code (and Articles 659 and 661 of the preceding one) expressly so provide, thereby confirming Article
1311 already quoted.
"ART. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to another or
others either by his will or by operation of law."
"ART. 776. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death."27 (Emphasis supplied)
The Court proceeded further to state the general rule:
Under our law, therefore, the general rule is that a party's contractual rights and obligations are
transmissible to the successors. The rule is a consequence of the progressive "depersonalization" of
patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of
these institutions. From the Roman concept of a relation from person to person, the obligation has
evolved into a relation from patrimony to patrimony, with the persons occupying only a representative
position, barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The transition is
marked by the disappearance of the imprisonment for debt.28 (Emphasis supplied)
The loan in this case was contracted by respondent. He died while the case was pending before the
Court of Appeals. While he may no longer be compelled to pay the loan, the debt subsists against his
estate. No property or portion of the inheritance may be transmitted to his heirs unless the debt has first
been satisfied. Notably, throughout the appellate stage of this case, the estate has been amply
represented by the heirs of the deceased, who are also his co-parties in Civil Case No. Q-90-7012.
The procedure in vindicating monetary claims involving a defendant who dies before final judgment is
governed by Rule 3, Section 20 of the Rules of Civil Procedure, to wit:
When the action is for recovery of money arising from contract, express or implied, and the defendant
dies before entry of final judgment in the court in which the action was pending at the time of such
death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A
favorable judgment obtained by the plaintiff therein shall be enforced in the manner especially provided
in these Rules for prosecuting claims against the estate of a deceased person.
Pursuant to this provision, petitioners remedy lies in filing a claim against the estate of the deceased
respondent. We now go to the interest awarded by the trial court. We note that the interest has been
pegged at 5% per month, or 60% per annum. This is unconscionable, hence cannot be enforced. 29 In
light of this, the rate of interest for this kind of loan transaction has been fixed in the case of Eastern
Shipping Lines v. Court of Appeals,30 at 12% per annum, calculated from October 3, 1989, the date of
extrajudicial demand.31
Following this formula, the total amount of the obligation of the estate of Benjamin Bayhon is as follows:
Plus: Interest
Principal Php 1,000,000.00
Less: Partial Payments 27,870.00
55,000.00
20,000.00
897,130.00
(12% per annum x 20 years) 2,153,552.00
 TOTAL: Php 3,050,682.00
IN VIEW WHEREOF, the decision of the Court of Appeals dated September 16, 2005 is AFFIRMED
with the MODIFICATION that the obligation to pay the principal loan and interest contracted by the
deceased Benjamin Bayhon subsists against his estate and is computed at PhP 3,050,682.00.
No costs.
SO ORDERED.
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 Decision 2 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:
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.
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.
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.
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:
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;
2. To pay the amount of Php20,000.00 each as reasonable attorneys fees;
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:
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.
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.
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.
Issues
HSBCL-SRP enumerated the following grounds to support its Petition:
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
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
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.
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.
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
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.
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
In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:
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.
x x x. (Emphasis supplied.)
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.
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.
[G.R. No. 118180. September 20, 1996]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, Sps. NORMY
D. CARPIO and CARMEN ORQUISA; Sps. ROLANDO D. CARPIO and RAFAELA VILLANUEVA;
Sps. ELISEO D. CARPIO and ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C. REYES,
JULIET REYES-RUBIN, respondents.
DECISION
PADILLA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks to set aside
the decision[1] of the Court of Appeals (CA) dated 28 February 1994 in C.A.-G.R. CV No. 37158, as well
as the resolution dated 11 August 1994 denying petitioner's motion for reconsideration.
The facts are undisputed:
Private respondents were the original owners of a parcel of agricultural land covered by TCT No. T-
1432, situated in Barrio Capucao, Ozamis City, with an area of 113,695 square meters, more or less.
On 30 May 1977, private respondents mortgaged said land to petitioner. When private respondents
defaulted on their obligation, petitioner foreclosed the mortgage on the land and emerged as sole
bidder in the ensuing auction sale. Consequently, Transfer Certificate of Title No. T-10913 was
eventually issued in petitioner's name.
On 6 April 1984, petitioner and private respondents entered into a Deed of Conditional Sale wherein
petitioner agreed to reconvey the foreclosed property to private respondents.
The pertinent stipulations of the Deed provided that:
"WHEREAS, the VENDOR acquired a parcel of land in an auction sale by the City Sheriff of Ozamiz
City, pursuant to Act 3135, as amended, and subject to the redemption period pursuant to CA 141,
described as follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to repurchase and the VENDOR agreed to sell the above-described
property, subject to the terms and stipulations as hereinafter stipulated, for the sum of SEVENTY
THREE THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down payment of P8,900.00 and
the balance of P64,800 shall be payable in six (6) years on equal quarterly amortization plan at 18%
interest per annum. The first quarterly amortization of P4,470.36 shall be payable three months from
the date of the execution of the documents and all subsequent amortization shall be due and payable
every quarter thereafter.
xxx xxx xxx
That, upon completion of the payment herein stipulated and agreed, the Vendor agrees to deliver to the
Vendee/s(,) his heirs, administrators and assigns(,) a good and sufficient deed of conveyance covering
the property, subject matter of this deed of conditional sale, in accordance with the provisions of law."
(Exh. "A", p. 5, Records)[2]
On 6 April 1990, upon completing the payment of the full repurchase price, private respondents
demanded from petitioner the execution of a Deed of Conveyance in their favor.
Petitioner then informed private respondents that the prestation to execute and deliver a deed of
conveyance in their favor had become legally impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued
10 June 1990.
Aggrieved, private respondents filed a complaint for specific performance with damages against
petitioner before the Regional Trial Court of Ozamis City, Branch XV. During the pre-trial, the trial court
narrowed down the issue to whether or not Sec. 6 of the CARL (Rep. Act 6657) had rendered legally
impossible compliance by petitioner with its obligation to execute a deed of conveyance of the subject
land in favor of private respondents. The trial court ordered both parties to file their separate
memorandum and deemed the case submitted for decision thereafter.
On 30 January 1992, the trial court rendered judgment, the dispositive part of which reads:
"WHEREFORE, judgment is rendered ordering defendant to execute and deliver unto plaintiffs a deed
of final sale of the land subject of their deed of conditional sale - Lot 5259-A, to pay plaintiffsP10,000.00
as nominal damages, P5,000.00 as attorney's fees, P3,000.00 as litis expenses and costs."[3]
The trial court held that petitioner interpreted the fourth paragraph of Sec. 6, Rep. Act 6657 literally in
conjunction with Sec. 1 of E.O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657 states that:
"Upon the effectivity of this Act, any sale disposition, lease, management contract or transfer of
possession of private lands executed by the original landowner in violation of this act shall be null and
void; Provided, however, that those executed prior to this act shall be valid only when registered with
the Register of Deeds after the effectivity of this Act. Thereafter, all Register of Deeds shall inform the
DAR within 320 days of any transaction involving agricultural lands in excess of five hectares."
while Sec. 1 of E.O. 407 states that:
"Sec. 1. All government instrumentalities but not limited to x x x financial institutions such as the DBP x
x x shall immediately execute deeds of transfer in favor of the Republic of the Philippines as
represented by the Department of Agrarian Reform and surrender to the department all landholdings
suitable for agriculture."
The court a quo noted that Sec. 6 of Rep. Act 6657, taken in its entirety, is a provision dealing primarily
with retention limits in agricultural land allowed the landowner and his family and that the fourth
paragraph, which nullifies any sale x x x by the original landowner in violation of the Act, does not cover
the sale by petitioner (not the original land owner) to private respondents.
On the other hand, according to the trial court, E.O. 407 took effect on 10 June 1990. But private
respondents completed payment of the price for the property, object of the conditional sale, as early
as 6 April 1990. Hence, with the fulfillment of the condition for the sale, the land covered thereby, was
detached from the mass of foreclosed properties held by DBP, and, therefore, fell beyond the ambit or
reach of E.O. 407.
Dissatisfied, petitioner appealed to the Court of Appeals (CA), still insisting that its obligation to execute
a Deed of Sale in favor of private respondents had become a legal impossibility and that the non-
impairment clause of the Constitution must yield to the demands of police power.
On 28 February 1994, the CA rendered judgment dismissing petitioner's appeal on the basis of the
following disquisitions:
"It is a rule that if the obligation depends upon a suspensive condition, the demandability as well as the
acquisition or effectivity of the rights arising from the obligation is suspended pending the happening or
fulfillment of the fact or event which constitutes the condition. Once the event which constitutes the
condition is fulfilled resulting in the effectivity of the obligation, its effects retroact to the moment when
the essential elements which gave birth to the obligation have taken place (8 Manresa, 5th Ed. Bk.
1, pa. 33). Applying this precept to the case, the full payment by the appellee on April 6, 1990 retroacts
to the time the contract of conditional sale was executed on April 6, 1984. From that time, all elements
of the contract of sale were present. Consequently, the contract of sale was perfected. As such, the
said sale does not come under the coverage of R.A. 6657.
It is likewise interesting to note that despite the mandate of Sec. 1, R.A. 6657, appellant continued to
accept the payments made by the appellee until it was fully paid on April 6, 1990. All that the appellant
has to do now is to execute the final deed of sale in favor of the appellee. To follow the line of argument
of the appellant would only result in an unconscionable injury to the appellee. Obligations arising from
contracts have the forceof law between the contracting parties and should be complied with in good
faith (Flavio Macasaet & Associates, Inc. vs. Commission on Audit, 173 SCRA 352).
Going now to E.O. 407, We hold that the same can neither affect appellant's obligation under the deed
of conditional sale. Under the said law, appellant is required to transfer to the Republic of
the Philippines'all lands foreclosed' effective June 10, 1990. Under the facts obtaining, the subject
property has ceased to belong to the mass of foreclosed property falling within the reach of said law. As
earlier explained, the property has already been sold to herein appellees even before the said E.O. has
been enacted. On this same reason, We therefore need not delve on the applicability of DBP Circular
No. 11."[4]
In the present petition for review on certiorari, petitioner still insists on its position that Rep. Act 6657,
E.O. 407 and DBP Circular No. 11 rendered its obligation to execute a Deed of Sale to private
respondents "a legal impossibility."[5] Petitioner also questions the award of attorney's fees, nominal
damages, and costs in favor of private respondents, as not in accord with law and the evidence. [6]
We rule in favor of private respondents.
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition.[7]
The deed of conditional sale between petitioner and private respondents was executed on 6 April
1984. Private respondents had religiously paid the agreed installments on the property until they
completed payment on 6 April 1990. Petitioner, in fact, allowed private respondents to fulfill the
condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 onlyafter private
respondents, having fully paid the repurchase price, demanded the execution of a Deed of Sale in their
favor.
It will be noted that Rep. Act 6657 was enacted on 10 June 1988. Following petitioner's argument in this
case, its prestation to execute the deed of sale was rendered legally impossible by Section 6 of said
law. In other words, the deed of conditional sale was extinguished by a supervening event, giving rise to
an impossibility of performance.
We reject petitioner's contention as we rule - as the trial court and CA have correctly ruled - that neither
Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the obligation of contract
petitioner had much earlier concluded with private respondents.
More specifically, petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set aside its
obligations already existing prior to its enactment. In the first place, said last paragraph clearly deals
with "any sale, lease, management contract or transfer or possession of private lands executed by
the original land owner." The original owner in this case is not the petitioner but the private
respondents. Petitioner acquired the land through foreclosure proceedings but agreed thereafter to
reconvey it to private respondents, albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by law to
small landowners. Since the property here involved is more or less ten (10) hectares, it is then within
the jurisdiction of the Department of Agrarian Reform (DAR) to determine whether or not the property
can be subjected to agrarian reform. But this necessitates an entirely different proceeding.
The CARL (Rep. Act 6657) was not intended to take away property without due process of law. Nor is it
intended to impair the obligation of contracts. In the same manner must E.O. 407 be regarded. It was
enacted two (2) months after private respondents had legally fulfilled the condition in the contract of
conditional sale by the payment of all installments on their due dates. These laws cannot have
retroactive effect unless there is an express provision in them to that effect. [8]
As to petitioner's contention, however, that the CA erred in affirming the trial court's decision awarding
nominal damages, and attorney's fees to private respondents, we rule in favor of petitioner.
It appears that the core issue in this case, being a pure question of law, did not reach the trial stage as
the case was submitted for decision after pre-trial.
The award of attorney's fees under Article 2208 of the Civil Code is more of an exception to the general
rule that it is not sound policy to place a penalty on the right to litigate. While judicial discretion in the
award of attorney's fees is not entirely left out, the same, as a rule, must have a factual, legal or
equitable justification. The matter cannot and should not be left to speculation and conjecture.[9]
As aptly stated in the Mirasol case:
"x x x The matter of attorney's fees cannot be touched once and only in the dispositive portion of the
decision. The text itself must expressly state the reason why attorney's fees are being awarded. The
court, after reading through the text of the appealed decision, finds the same bereft of any findings of
fact and law to justify the award of attorney's fees. The matter of such fees was touched but once and
appears only in the dispositive portion of the decision. Simply put, the text of the decision did not state
the reason why attorney's fees are being awarded, and for this reason, the Court finds it necessary to
disallow the same for being conjectural."[10]
While DBP committed egregious error in interpreting Sec. 6 of RA 6657, the same is not equivalent to
gross and evident bad faith when it refused to execute the deed of sale in favor of private respondents.
For the same reasons stated above, the award of nominal damages in the amount of P10,000.00
should also be deleted.
The amount of P3,000.00 as litigation expenses and costs against petitioner must remain.
WHEREFORE, premises considered, the petition is hereby DENIED, and the decision of the CA is
hereby AFFIRMED, for lack of any reversible error, with the MODIFICATION that attorney's fees and
nominal damages awarded to private respondents are hereby DELETED.
SO ORDERED.
G.R. No. 165116 August 4, 2009
MARIA SOLEDAD TOMIMBANG, Petitioner,
vs.
ATTY. JOSE TOMIMBANG, Respondent.
DECISION
DEL CASTILLO, J.:
This resolves the petition for review on certiorari under Rule 45 of the Rules of Court, praying that the
Decision1dated July 1, 2004 and Resolution 2 dated August 31, 2004 promulgated by the Court of
Appeals (CA), be reversed and set aside.
The antecedent facts are as follows.
Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment
located at 149 Santolan Road, Murphy, Quezon City, with the condition that during the parents' lifetime,
they shall retain control over the property and petitioner shall be the administrator thereof.
In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance the renovations on Unit H, of said
apartment which she intended to use as her residence. Petitioner failed to obtain a loan from PAG-IBIG
Fund, hence, respondent offered to extend a credit line to petitioner on the following conditions: (1)
petitioner shall keep a record of all the advances; (2) petitioner shall start paying the loan upon the
completion of the renovation; (3) upon completion of the renovation, a loan and mortgage agreement
based on the amount of the advances made shall be executed by petitioner and respondent; and (4)
the loan agreement shall contain comfortable terms and conditions which petitioner could have
obtained from PAG-IBIG.3
Petitioner accepted respondent's offer of a credit line and work on the apartment units began.
Renovations on Units B to G were completed, and the work has just started on Unit A when an
altercation broke out between herein parties. In view of said conflict, respondent and petitioner, along
with some family members, held a meeting in the house of their brother Genaro sometime in the
second quarter of 1997. Respondent and petitioner entered into a new agreement whereby petitioner
was to start making monthly payments on her loan. Upon respondent's demand, petitioner turned over
to respondent all the records of the cash advances for the renovations. Subsequently, or from June to
October of 1997, petitioner made monthly payments of P18,700.00, or a total of P93,500.00. Petitioner
never denied the fact that she started making such monthly payments.
In October of 1997, a quarrel also occurred between respondent and another sister, Maricion, who was
then defending the actions of petitioner. Because of said incident, they had a hearing at the Barangay.
At said hearing, respondent had the occasion to remind petitioner of her monthly payment. Petitioner
allegedly answered, "Kalimutan mo na ang pera mo wala tayong pinirmahan. Hindi ako natatakot sa
'yo!" Thereafter, petitioner left Unit H and could no longer be found. Petitioner being the owner of the
apartments, renovations on Unit A were discontinued when her whereabouts could not be located. She
also stopped making monthly payments and ignored the demand letter dated December 2, 1997 sent
by respondent's counsel.
On February 2, 1998, respondent filed a Complaint against petitioner, demanding the latter to pay the
former the net amount of P3,989,802.25 plus interest of 12% per annum from date of default.
At the pre-trial conference, the issues were narrowed down as follows:
1. Whether or not a loan was duly constituted between the plaintiff and the defendant in connection with
the improvements or renovations on apartment units A-H, which is in the name of the defendant [herein
petitioner];
2. Assuming that such a loan was duly constituted in favor of plaintiff [herein respondent], whether or
not the same is already due and payable;
3. Assuming that said loan is already due and demandable, whether or not it is to be paid out of the
rental proceeds from the apartment units mentioned, presuming that such issue was raised in the
Answer of the Defendant;
4. Assuming that the said loan was duly constituted in favor of plaintiff [herein respondent], whether or
not it is in the amount of P3,909,802.20 and whether or not it will earn legal interest at the rate of 12%
per annum, compounded, as provided in Article 2212 of the Civil Code of the Philippines, from the date
of the extrajudicial demand; and
5. Whether or not the plaintiff [herein respondent] is entitled to the reliefs prayed for in his Complaint or
whether or not it is the defendant [herein petitioner] who is entitled to the reliefs prayed for in her
Answer with Counterclaim.4
On November 15, 2002, the Regional Trial Court (RTC) of Quezon City, Branch 82, rendered a
Decision,5 the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter to pay the former the following:
1. The sum of P3,989,802.25 with interest thereon at the legal rate of 12% per annum computed from
the date of default until the whole obligation is fully paid;
2. The sum of P50,000.00 as and by way of attorney's fees; and
3. The cost of suit.
SO ORDERED.6
Petitioner appealed the foregoing RTC Decision to the CA, but on July 1, 2004, the Court of Appeals
promulgated its Decision affirming in toto said RTC judgment. A motion for reconsideration of the CA
Decision was denied per Resolution dated August 31, 2004.
Hence, this petition where petitioner alleges that:
I.
THE COURT OF APPEALS ACTED NOT IN ACCORD WITH LAW AND APPLICABLE
JURISPRUDENCE OF THE SUPREME COURT WHEN IT AFFIRMED THE LOWER COURT'S
FINDING THAT THE LOAN BETWEEN PETITIONER AND RESPONDENT IS ALREADY DUE AND
DEMANDABLE.
II.
THE COURT OF APPEALS ERRED BY DEPARTING FROM THE ACCEPTED AND USUAL COURSE
OF JUDICIAL PROCEEDINGS OF AFFIRMING THE DUE AND DEMANDABILITY OF THE LOAN
CONTRARY TO THE EVIDENCE PRESENTED IN THE LOWER COURT AND SANCTIONING
SUCH DEPARTURE BY THE LOWER COURT IN THE INSTANT CASE.
III.
THE COURT OF APPEALS ERRED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS OF AFFIRMING THE AWARD OF ATTORNEY'S FEES TO THE RESPONDENT
WITHOUT ANY BASIS AND SANCTIONING SUCH DEPARTURE BY THE LOWER COURT IN THE
INSTANT CASE.7
The main issues in this case boil down to (1) whether petitioner's obligation is due and demandable; (2)
whether respondent is entitled to attorney's fees; and (3) whether interest should be imposed on
petitioner's indebtedness and, if in the affirmative, at what rate.
Petitioner does not deny that she obtained a loan from respondent. She, however, contends that the
loan is not yet due and demandable because the suspensive condition the completion of the
renovation of the apartment units - has not yet been fulfilled. She also assails the award of attorney's
fees to respondent as baseless.
For his part, respondent admits that initially, they agreed that payment of the loan shall be made upon
completion of the renovations. However, respondent claims that during their meeting with some family
members in the house of their brother Genaro sometime in the second quarter of 1997, he and
petitioner entered into a new agreement whereby petitioner was to start making monthly payments on
her loan, which she did from June to October of 1997. In respondent's view, there was a novation of the
original agreement, and under the terms of their new agreement, petitioner's obligation was already due
and demandable.
Respondent also maintains that when petitioner disappeared from the family compound without leaving
information as to where she could be found, making it impossible to continue the renovations, petitioner
thereby prevented the fulfillment of said condition. He claims that Article 1186 of the Civil Code, which
provides that "the condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment," is applicable to this case.
In his Comment to the present petition, respondent raised for the first time, the issue that the loan
contract between him and petitioner is actually one with a period, not one with a suspensive condition.
In his view, when petitioner began to make partial payments on the loan, the latter waived the benefit of
the term, making the loan immediately demandable.
Respondent also believes that he is entitled to attorney's fees, as petitioner allegedly showed bad faith
by absconding and compelling him to litigate.
The Court finds the petition unmeritorious.
It is undisputed that herein parties entered into a valid loan contract. The only question is, has
petitioner's obligation become due and demandable? The Court resolves the question in the affirmative.
The evidence on record clearly shows that after renovation of seven out of the eight apartment units
had been completed, petitioner and respondent agreed that the former shall already start making
monthly payments on the loan even if renovation on the last unit (Unit A) was still pending. Genaro
Tomimbang, the younger brother of herein parties, testified that a meeting was held among petitioner,
respondent, himself and their eldest sister Maricion, sometime during the first or second quarter of
1997, wherein respondent demanded payment of the loan, and petitioner agreed to pay. Indeed,
petitioner began to make monthly payments from June to October of 1997 totalling P93,500.00.8 In fact,
petitioner even admitted in her Answer with Counterclaim that she had "started to make payments to
plaintiff [herein respondent] as the same was in accord with her commitment to pay whenever
she was able; x x x ."9
Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with the condition that
petitioner shall only begin paying after the completion of all renovations. There was, in effect, a
modificatory or partial novation, of petitioner's obligation. Article 1291 of the Civil Code provides, thus:
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (Emphasis supplied)
In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,10 the Court expounded on the nature of novation,
to wit:
Novation may either be extinctive or modificatory, much being dependent on the nature of the
change and the intention of the parties. Extinctive novation is never presumed; there must be an
express intention to novate; x x x .
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and,
second, creating a new one in its stead. This kind of novation presupposes a confluence of four
essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the birth of a new valid
obligation. Novation is merely modificatory where the change brought about by any subsequent
agreement is merely incidental to the main obligation (e.g., a change in interest rates or an
extension of time to pay); in this instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or supplant some but not all of its
provisions.11
12
In Ong v. Bogalbal, the Court also stated, thus:
x x x the effect of novation may be partial or total. There is partial novation when there is only a
modification or change in some principal conditions of the obligation. It is total, when the obligation is
completely extinguished. Also, the term principal conditions in Article 1291 should be construed to
include a change in the period to comply with the obligation. Such a change in the period would only be
a partial novation since the period merely affects the performance, not the creation of the obligation.13
As can be gleaned from the foregoing, the aforementioned four essential elements and the requirement
that there be total incompatibility between the old and new obligation, apply only to extinctive novation.
In partial novation, only the terms and conditions of the obligation are altered, thus, the main obligation
is not changed and it remains in force.
Petitioner stated in her Answer with Counterclaim14 that she agreed and complied with respondent's
demand for her to begin paying her loan, since she believed this was in accordance with her
commitment to pay whenever she was able. Her partial performance of her obligation is unmistakable
proof that indeed the original agreement between her and respondent had been novated by the deletion
of the condition that payments shall be made only after completion of renovations. Hence, by her very
own admission and partial performance of her obligation, there can be no other conclusion but that
under the novated agreement, petitioner's obligation is already due and demandable.
With the foregoing finding that petitioner's obligation is due and demandable, there is no longer any
need to discuss whether petitioner's disappearance from the family compound prevented the fulfillment
of the original condition, necessitating application of Article 1186 of the Civil Code, or whether the
obligation is one with a condition or a period.1awphil
As to attorney's fees, however, the award therefor cannot be allowed by the Court. It is an oft-repeated
rule that the trial court is required to state the factual, legal or equitable justification for awarding
attorney's fees.15 The Court explained in Buing v. Santos,16 to wit:
x x x While Article 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission of the party from whom it is sought, there must be a showing that the
losing party acted willfully or in bad faith and practically compelled the claimant to litigate and
incur litigation expenses. In view of the declared policy of the law that awards of attorney's fees
are the exception rather than the rule, it is necessary for the trial court to make express findings
of facts and law that would bring the case within the exception and justify the grant of such
award. x x x.
Thus, the matter of attorney's fees cannot be touched upon only in the dispositive portion of the
decision. The text itself must state the reasons why attorney's fees are being awarded. x x x 17
In the above-quoted case, there was a finding that defendants therein had no intention of fulfilling their
obligation in complete disregard of the plaintiffs right, and yet, the Court did not deem this as sufficient
justification for the award of attorney's fees. Verily, in the present case, where it is understandable that
some misunderstanding could arise as to when the obligation was indeed due and demandable, the
Court must likewise disallow the award of attorney's fees.
We now come to a discussion of whether interest should be imposed on petitioner's indebtedness.
In Royal Cargo Corp. v. DFS Sports Unlimited, Inc.,18 the Court reiterated the settled rule on imposition
of interest, thus:
As to computation of legal interest, the seminal ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals controls, to wit:
_ftnx x x x
II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
The foregoing rule on legal interest was explained in Sunga-Chan v. Court of Appeals,19 in this wise:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits, as well as to judgments involving such loan
or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim
applies "when the transaction involves the payment of indemnities in the concept of damage arising was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after
from the breach or a delay in the performance of obligations in general," with the application of both hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the
rates reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." In either subscription in question was neither registered in nor authorized by the Securities and Exchange
instance, the reckoning period for the commencement of the running of the legal interest shall be Commission. From this order the Quezon College, Inc. has appealed.
subject to the condition "that the courts are vested with discretion, depending on the equities of each
case, on the award of interest."20 It is not necessary for us to discuss at length appellant's various assignments of error relating to the
propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the
In accordance with the above ruling, since the obligation in this case involves a loan and there is no administrator and appellee, there are other decisive considerations which, though not touched by the
stipulation in writing as to interest due, the rate of interest shall be 12% per annum computed from the lower court, amply sustained the appealed order.
date of extrajudicial demand.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on
IN VIEW OF THE FOREGOING, the petition is AFFIRMED with the MODIFICATION that the award for a general form indicating that an applicant will enclose an amount as initial payment and will pay the
attorney's fees is DELETED. balance in accordance with law and the regulations of the College. On the other hand, in the letter
actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be
SO ORDERED. entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos
na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc.
G.R. No. L-5003 June 27, 1953 accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance
the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is
NAZARIO TRILLANA, administrator-appellee, obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc.,
vs. there was absolute necessity on the part of the College to express its agreement to Damasa's offer in
QUEZON COLLEGE, INC., claimant-appellant. order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to
immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the
PARAS, J.:
subscription after she had caused fish to be caught. In other words, the relation between Damasa
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College: Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the
latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for
subscription fixing her own plan of payment, a relation, in the absence as in the present case of
June 1, 1948 acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not
ripened into an enforceable contract.
The BOARD OF TRUSTEES
Quezon College Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more
Manila imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she
has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in
Gentlemen: nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows:
"If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional
Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of obligation shall be void. If it should depend upon chance, or upon the will of a third person, the
P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng obligation shall produce all its effects in accordance with the provisions of this code." It cannot be
isda) pesos as my initial payment and the balance payable in accordance with law and the rules and argued that the condition solely is void, because it would have served to create the obligation to pay,
regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said unlike a case, exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition
shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of was held void because it referred merely to the fulfillment of an already existing indebtedness.
Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay
binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman). In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a
condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and
renders the whole obligation void."
Very respectfully,
Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber G.R. No. 83851. March 3, 1993.

Nilagdaan sa aming harapan: VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF
APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO DECISION

Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the
subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the
Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000,
DAVIDE, JR., J p:
By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set aside
the decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 promulgated on 16
March 1988, which affirmed with modification, in respect to the moral damages, the decision of the
Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128, an action for specific performance and
damages, filed by the herein private respondent against the petitioners. The dispositive portion of the
trial court's decision reads as follows:
"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and against the
defendants ordering the latter to pay jointly and severally plaintiff, to wit:
1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as actual
damages;
2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;
3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;
4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and
5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2
The public respondent reduced the amount of moral damages to P25,000.00.
The antecedent facts, summarized by the public respondent, are as follows:
"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving scrap
iron located at the stockyard of defendant-appellant corporation at Cawitan, Sta. Catalina, Negros
Oriental, subject to the condition that plaintiff-appellee will open a letter of credit in the amount of
P250,000.00 in favor of defendant-appellant corporation on or before May 15, 1983. This is evidenced
by a contract entitled `Purchase and Sale of Scrap Iron' duly signed by both parties.
On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic) scrap iron
at the defendant-appellant's (sic) premises, proceeding with such endeavor until May 30 when
defendants-appellants allegedly directed plaintiff-appellee's men to desist from pursuing the work in
view of an alleged case filed against plaintiff-appellee by a certain Alberto Pursuelo. This, however, is
denied by defendants-appellants who allege that on May 23, 1983, they sent a telegram to plaintiff-
appellee cancelling the contract of sale because of failure of the latter to comply with the conditions
thereof.
On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of credit
was opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but then (sic) the
transmittal was delayed.
On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of
the Bank of the Philippine Islands dated May 26, 1983, the content of which is quited (sic) as follows:
'Please be advised that we have received today cable advise from our Head Office which reads as
follows:
'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00 favor ANG TAY
c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACO-MARSTEEL
ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro
Manila Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July
24, 1983 without recourse at sight draft drawn on Armaco Marsteel Alloy Corporation accompanied by
the following documents: Certificate of Acceptance by Armaco-Marsteel Alloy Corporation shipment
from Dumaguete City to buyer's warehouse partial shipment allowed/transhipment (sic) not allowed'.
For your information'.
On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against him by
Pursuelo had been dismissed and demanding that defendants-appellants comply with the deed of sale,
otherwise a case will be filed against them.
In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiff-appellee's
lawyer that defendant-appellant corporation is unwilling to continue with the sale due to plaintiff-
appellee's failure to comply with essential pre-conditions of the contract.
On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for preliminary attachment.
The writ of attachment was returned unserved because the defendant-appellant corporation was no
longer in operation and also because the scrap iron as well as other pieces of machinery can no longer
be found on the premises of the corporation." 3
In his complaint, private respondent prayed for judgment ordering the petitioner corporation to comply
with the contract by delivering to him the scrap iron subject thereof; he further sought an award of
actual, moral and exemplary damages, attorney's fees and the costs of the suit. 4
In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was
justified because of private respondent's non-compliance with essential pre-conditions, among which is
the opening of an irrevocable and unconditional letter of credit not later than 15 May 1983.
During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved; these
issues were subsequently embodied in the pre-trial order, to wit:
"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by the
parties cancelled and terminated before the Complaint was filed by anyone of the parties; if so, what
are the grounds and reasons relied upon by the cancelling parties; and were the reasons or grounds for
cancelling valid and justified?
2. Are the parties entitled to damages they respectively claim under the pleadings?" 6
On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was
quoted earlier.
Petitioners appealed from said decision to the Court of Appeals which docketed the same as C.A.-G.R.
CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged that the trial court erred:
"1. In finding that there was delivery of the scrap iron subject of the sale;
2. In not finding that plaintiff had not complied with the conditions in the contract of sale;
3. In finding that defendants-appellants were not justified in cancelling the sale;
4. In awarding damages to the plaintiff as against the defendants-appellants;
5. In not awarding damages to defendants-appellants." 7
Public respondent disposed of these assigned errors in this wise:
"On the first error assigned, defendants-appellants argue that there was no delivery because the
purchase document states that the seller agreed to sell and the buyer agreed to buy 'an undetermined
quantity of scrap iron and junk which the seller will identify and designate.' Thus, it is contended, since
no identification and designation was made, there could be no delivery. In addition, defendants-
appellants maintain that their obligation to deliver cannot be completed until they furnish the cargo
trucks to haul the weighed materials to the wharf.
The arguments are untenable. Article 1497 of the Civil Code states:
'The thing sold shall be understood as delivered when it is placed in the control and possession of the
vendee.'
In the case at bar, control and possession over the subject matter of the contract was given to plaintiff-
appellee, the buyer, when the defendants-appellants as the sellers allowed the buyer and his men to
enter the corporation's premises and to dig-up the scrap iron. The pieces of scrap iron then (sic) placed
at the disposal of the buyer. Delivery was therefore complete. The identification and designation by the
seller does not complete delivery.
On the second and third assignments of error, defendants-appellants argue that under Articles 1593
and 1597 of the Civil Code, automatic rescission may take place by a mere notice to the buyer if the
latter committed a breach of the contract of sale.
Even if one were to grant that there was a breach of the contract by the buyer, automatic rescission
cannot take place because, as already (sic) stated, delivery had already been made. And, in cases
where there has already been delivery, the intervention of the court is necessary to annul the contract.
As the lower court aptly stated:
'Respecting these allegations of the contending parties, while it is true that Article 1593 of the New Civil
Code provides that with respect to movable property, the rescission of the sale shall of right take place
in the interest of the vendor, if the vendee fails to tender the price at the time or period fixed or agreed,
however, automatic rescission is not allowed if the object sold has been delivered to the buyer
(Guevarra vs. Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the action being one to rescind
judicially and where (sic) Article 1191, supra, thereby applies. There being already an implied delivery of
the items, subject matter of the contract between the parties in this case, the defendant having
surrendered the premises where the scraps (sic) were found for plaintiff's men to dig and gather, as in
fact they had dug and gathered, this Court finds the mere notice of resolution by the defendants
untenable and not conclusive on the rights of the plaintiff (Ocejo Perez vs. Int. Bank, 37 Phi. 631).
Likewise, as early as in the case of Song Fo vs. Hawaiian Philippine Company, it has been ruled that
rescission cannot be sanctioned for a slight or casual breach (47 Phil. 821).'
In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:
'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon
failure of the other to perform the obligation assumed thereunder.
Of course, it must be understood that the right of a party in treating a contract as cancelled or resolved
on account of infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court.'
Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to review by the
courts and cannot be considered final.
In the case at bar, the trial court ruled that rescission is improper because the breach was very slight
and the delay in opening the letter of credit was only 11 days.
'Where time is not of the essence of the agreement, a slight delay by one party in the performance of
his obligation is not a sufficient ground for rescission of the agreement. Equity and justice mandates
(sic) that the vendor be given additional (sic) period to complete payment of the purchase price.'
(Taguda vs. Vda. de Leon, 132 SCRA (1984), 722).'
There is no need to discuss the fourth and fifth assigned errors since these are merely corollary to the
first three assigned errors." 8
Their motion to reconsider the said decision having been denied by public respondent in its Resolution
of 4 May 1988, 9 petitioners filed this petition reiterating the abovementioned assignment of errors.
There is merit in the instant petition.
Both the trial court and the public respondent erred in the appreciation of the nature of the transaction
between the petitioner corporation and the private respondent. To this Court's mind, what obtains in the
case at bar is a mere contract to sell or promise to sell, and not a contract of sale.
The trial court assumed that the transaction is a contract of sale and, influenced by its view that there
was an "implied delivery" of the object of the agreement, concluded that Article 1593 of the Civil Code
was inapplicable; citing Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled that rescission
under Article 1191 of the Civil Code could only be done judicially. The trial court further classified the
breach committed by the private respondent as slight or casual, foreclosing, thereby, petitioners' right to
rescind the agreement.
Article 1593 of the Civil Code provides:
"ARTICLE 1593. With respect to movable property, the rescission of the sale shall of right take place in
the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the
thing, should not have appeared to receive it, or, having appeared, he should not have tendered the
price at the same time, unless a longer period has been stipulated for its payment."
Article 1191 provides:
"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period."
xxx xxx xxx
Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of the Civil Code
which provides:
"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee."
In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the seller bound
and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his obligation
to make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price. Its
principal stipulation reads, to wit:
xxx xxx xxx
"Witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron
and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental,
at the price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg. Oriental.
2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and
unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company,
Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY
THOUSAND PESOS (P250,000.00), Philippine Currency.
3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to
haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER's
barge. All expenses for labor, loading and unloading shall be for the account of the BUYER.
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance." (Emphasis
supplied).
The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive condition,
i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of
credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means
of an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of sale
where the buyer acquired ownership over the property subject to the resolutory condition that the
purchase price would be paid after delivery. Thus, there was to be no actual sale until the opening,
making or indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case
at bar is a mere promise to sell, the failure of the private respondent to comply with the positive
suspensive condition cannot even be considered a breach casual or serious but simply an event
that prevented the obligation of petitioner corporation to convey title from acquiring binding force. In
Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., 13 this Court stated:
" . . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the
price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely
enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of), such restoration being the logical
consequence of the fulfillment of a resolutory condition, express or implied (article 1190); neither was it
seeking a declaration that its obligation to sell was extinguished. What it sought was a judicial
declaration that because the suspensive condition (full and punctual payment) had not been fulfilled, its
obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was
entitled to repossess the property object of the contract, possession being a mere incident to its right of
ownership. It is elementary that, as stated by Castan,
'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor pierde
todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast n, Derecho Civil, 7a Ed., p. 107).
(Also Puig Pea, Der. Civ., T. IV (1), p. 113)'."
In the instant case, not only did the private respondent fail to open, make or indorse an irrevocable and
unconditional letter of credit on or before 15 May 1983 despite his earlier representation in his 24 May
1983 telegram that he had opened one on 12 May 1983, the letter of advice received by the petitioner
corporation on 26 May 1983 from the Bank of the Philippine Islands Dumaguete City branch explicitly
makes reference to the opening on that date of a letter of credit in favor of petitioner Ang Tay c/o
Visayan Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL ALLOY CORPORATION
and set to expire on 24 July 1983, which is indisputably not in accordance with the stipulation in the
contract signed by the parties on at least three (3) counts: (1) it was not opened, made or indorsed by
the private respondent, but by a corporation which is not a party to the contract; (2) it was not opened
with the bank agreed upon; and (3) it is not irrevocable and unconditional, for it is without recourse, it is
set to expire on a specific date and it stipulates certain conditions with respect to shipment. In all
probability, private respondent may have sold the subject scrap iron to ARMACO-MARSTEEL ALLOY
CORPORATION, or otherwise assigned to it the contract with the petitioners. Private respondent's
complaint fails to disclose the sudden entry into the picture of this corporation.
Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be
compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code
does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation
may totally rescind, as it did in this case, the contract. Said Article provides:
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated
the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has
committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his
election so to do to the buyer."
The trial court ruled, however, and the public respondent was in agreement, that there had been an
implied delivery in this case of the subject scrap iron because on 17 May 1983, private respondent's
men started digging up and gathering scrap iron within the petitioner's premises. The entry of these
men was upon the private respondent's request. Paragraph 6 of the Complaint reads:
"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the stockyard
of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron
and stock the same for weighing." 14
This permission or consent can, by no stretch of the imagination, be construed as delivery of the scrap
iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code, petitioners
placed the private respondent in control and possession thereof. In the first place, said Article 1497 falls
under the Chapter 15 Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil
Code. As such, therefore, the obligation imposed therein is premised on an existing obligation to deliver
the subject of the contract. In the instant case, in view of the private respondent's failure to comply with
the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In the second
place, it was a mere accommodation to expedite the weighing and hauling of the iron in the event that
the sale would materialize. The private respondent was not thereby placed in possession of and control
over the scrap iron. Thirdly, We cannot even assume the conversion of the initial contract or promise to
sell into a contract of sale by the petitioner corporation's alleged implied delivery of the scrap iron
because its action and conduct in the premises do not support this conclusion. Indeed, petitioners
demanded the fulfillment of the suspensive condition and eventually cancelled the contract.
All told, Civil Case No. 15128 filed before the trial court was nothing more than the private respondent's
preemptive action to beat the petitioners to the draw.
One last point. This Court notes the palpably excessive and unconscionable moral and exemplary
damages awarded by the trial court to the private respondent despite a clear absence of any legal and
factual basis therefor. In contracts, such as in the instant case, moral damages may be recovered if
defendants acted fraudulently and in bad faith, 16 while exemplary damages may only be awarded if
defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 17 In the instant
case, the refusal of the petitioners to deliver the scrap iron was founded on the non-fulfillment by the
private respondent of a suspensive condition. It cannot, therefore, be said that the herein petitioners
had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or malevolent manner.
What this Court stated in Inhelder Corp. vs. Court of Appeals 18 needs to be stressed anew:
"At this juncture, it may not be amiss to remind Trial Courts to guard against the award of exhorbitant
(sic) damages that are way out of proportion to the environmental circumstances of a case and which,
time and again, this Court has reduced or eliminated. Judicial discretion granted to the Courts in the
assessment of damages must always be exercised with balanced restraint and measured objectivity."
For, indeed, moral damages are emphatically not intended to enrich a complainant at the expense of
the defendant. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to obviate the moral suffering he has undergone, by reason of the
defendant's culpable action. Its award is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and it must be proportional to the suffering inflicted. 19
WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of Appeals in
C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional Trial Court of Iloilo is
ordered DISMISSED.
Costs against the private respondent.
SO ORDERED.
Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ ., concur.
Gutierrez, Jr., J ., On terminal leave.
Melo and Quiason, JJ ., No part.
Separate Opinions
ROMERO, J., dissenting:
I vote to dismiss the petition.
Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983 with private
respondent RJH Trading Co. represented by private respondent Ramon J. Hibionada. The contract,
entitled "PURCHASE AND SALE OF SCRAP IRON," stated:
This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete City, Phil.,
this 1st day of May, 1983 by and between:
VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and
RAMON J. HIBIONADA, . . . hereinafter called the BUYER,
witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron
and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental,
at the price of FIFTY CENTAVOS (P.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros Oriental.
2. To cover payment of the purchase price BUYER will open, make or indorse an irrevocable and
unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company,
Dumaguete City Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY
THOUSAND PESOS (P250,000.00), Philippine currency.
3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to
haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER'S
barge. All expenses for labor, loading and unloading shall be for the account of the BUYER.
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance.
xxx xxx xxx
On May 17, 1983, the workers of private respondents were allowed inside petitioner company's
premises in order to gather the scrap iron. However, on May 23, 1983, petitioner company sent a
telegram which stated:
"RAMON HIBIONADA
RJH TRADING
286 QUEZON STREET
ILOILO CITY
DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR
PURCHASE SCRAP IRON CANCELLED
VISAYAN SAWMILL CO., INC."
Hibionada wired back on May 24, 1983 the following:
"ANG TAY VISAYAN SAWMILL
DUMAGUETE CITY
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE
AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER
REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.
RAMON HIBIONADA"
On May 26, 1983, petitioner company received the following advice from the Dumaguete City Branch of
The Bank of Philippine Islands: cdll
"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in favor ANG TAY
c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of ARMACO-MARSTEEL
ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati Metro
Manila Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July
23, 1983 without recourse at slight draft drawn on Armaco-Marsteel Alloy Corporation accompanied by
the following documents: Certificate of acceptance by Armaco-Marsteel Allow (sic) Corporation
shipment from Dumaguete City to buyer's warehouse partial shipment allowed/transhipment not
allowed."
Subsequently, petitioners' counsel sent another telegram to private respondents stating that:
"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO HIBIONADA
DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"
Consequently, private respondents filed a complaint for specific performance and damages with the
Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of private respondents. The
RTC decision having been affirmed by the Court of Appeals, the present petition was filed.
Finding the petition meritorious, the ponencia reversed the decision of the Court of Appeals. Based on
its appreciation of the contract in question, it has arrived at the conclusion that herein contract is not a
contract of sale but a contract to sell which is subject to a positive suspensive condition, i.e., the
opening of a letter of credit by private respondents. Since the condition was not fulfilled, the obligation
of petitioners to convey title did not arise. The lengthy decision of Luzon Brokerage Co., Inc. v. Maritime
Co. Inc. 1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption that subject
contract is indeed a contract to sell but which will be shown herein as not quite accurate.
Evidently, the distinction between a contract to sell and a contract of sale is crucial in this case. Article
1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a
price certain in money or its equivalent."
Article 1475 gives the significance of this mutual undertaking of the parties, thus: "The contract of sale
is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price. From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts."
Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May 1,
1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the object
which is the subject matter of the contract and the price which is the consideration. Applying Article
1475 of the Civil Code, from that moment, the parties may reciprocally demand performance of the
obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee.
Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer Ramon Hibionada
went to Mr. Ang Tay and informed him that the letter of credit was forthcoming and if it was possible for
him (buyer) to start cutting and digging the scrap iron before the letter of credit arrives and the former
(seller) manifested no objection, and he immediately sent 18 or 20 people to start the operation." 2
From the time the seller gave access to the buyer to enter his premises, manifesting no objection
thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the control
and possession of the vendee and delivery is effected. For according to Article 1497, "The thing sold
shall be understood as delivered when it is placed in the control and possession of the vendee." 3
Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the Civil
Code, "The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him
in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee."
That payment of the price in any form was not yet effected is immaterial to the transfer of the right of
ownership. In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder.
4 In light of the provisions of the contract, contemporaneous and subsequent acts of the parties and the
On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the purchaser
until he has fully paid the price." 5 In such a contract to sell, the full payment of the price is a positive
suspensive condition, such that in the event of non-payment, the obligation of the seller to deliver and
transfer ownership never arises. Stated differently, in a contract to sell, ownership is not transferred
upon delivery of property but upon full payment of the purchase price. 6
Consequently, in a contract of sale, after delivery of the object of the contract has been made, the seller
loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to
sell, the seller retains ownership and the buyer's failure to pay cannot even be considered a breach,
whether casual or substantial, but an event that prevented the seller's duty to transfer title to the object
of the contract.
At the outset, it must be borne in mind that a provision in the contract regarding the mode of payment,
like the requirement for the opening of the Letter of Credit in this case, is not among the essential
requirements of a contract of sale enumerated in Articles 1305 7 and 1474, 8 the absence of any of
which will prevent the perfection of the contract from happening. Likewise, it must be emphasized that
not every provision regarding payment should automatically be classified as a suspensive condition. To
do so would change the nature of most contracts of sale into contracts to sell. For a provision in the
contract regarding the payment of the price to be considered a suspensive condition, the parties must
have made this clear in certain and unambiguous terms, such as for instance, by reserving or
withholding title to the goods until full payment by the buyer. 9 This was a pivotal circumstance in the
Luzon Brokerage case where the contract in question was replete with very explicit provisions such as
the following: "Title to the properties subject of this contract remains with the Vendor and shall pass to,
and be transferred in the name of the Vendee only upon complete payment of the full price . . .;" 10 the
Vendor (Myers) will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full
payment of the Vendee . . .; 11 and "should the Vendee fail to pay any of the monthly installments,
when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this
Deed of Conditional Sale shall automatically and without any further formality, become null and void."
12
It is apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it 13 and
the subsequent ones applying its doctrines, 14 that the mere insertion of the price and the mode of
payment among the terms and conditions of the agreement will not necessarily make it a contract to
sell. The phrase in the contract "on the following terms and conditions" is standard form which is not to
be construed as imposing a condition, whether suspensive or resolutory, in the sense of the happening
of a future and uncertain event upon which an obligation is made to depend. There must be a manifest
understanding that the agreement is in what may be referred to as "suspended animation" pending
compliance with provisions regarding payment. The reservation of title to the object of the contract in
the seller is one such manifestation. Hence, it has been decided in the case of Dignos v. Court of
Appeals 15 that, absent a proviso in the contract that the title to the property is reserved in the vendor
until full payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind
the contract the moment the vendee fails to pay within the fixed period, the transaction is an absolute
contract of sale and not a contract to sell. 16
In the instant case, nowhere in the contract did it state that the petitioners reserve title to the goods until
private respondents have opened a letter of credit. Nor is there any provision declaring the contract as
without effect until after the fulfillment of the condition regarding the opening of the letter of credit.
Examining the contemporaneous and subsequent conduct of the parties, which may be relevant in the
determination of the nature and meaning of the contract, 17 it is significant that in the telegram sent by
petitioners to Hibionada on May 23, 1983, it stated that "DUE [TO] YOUR FAILURE TO COMPLY WITH
CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON
CANCELLED." And in some of the pleadings in the course of this litigation, petitioners referred to the
transaction as a contract of sale. 18
other relevant circumstances surrounding the case, it is evident that the stipulation for the buyer to
open a Letter of Credit in order to cover the payment of the purchase price does not bear the marks of
a suspensive condition. The agreement between the parties was a contract of sale and the "terms and
conditions" embodied therein which are standard form, are clearly resolutory in nature, the breach of
which may give either party the option to bring an action to rescind and/or seek damages. Contrary to
the conclusions arrived at in the ponencia, the transaction is not a contract to sell but a contract of sale.
However, the determination of the nature of the contract does not settle the controversy. A breach of the
contract was committed and the rights and liabilities of the parties must be established. The ponencia,
notwithstanding its conclusion that no contract of sale existed, proceeded to state that petitioner
company may rescind the contract based on Article 1597 of the Civil Code which expressly applies only
to a contract of sale. It provides:
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated
the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has
committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his
election so to do to the buyer." (Emhasis supplied).
The ponencia was then confronted with the issue of delivery since Article 1597 applies only "[w]here the
goods have not yet been delivered." In this case, as aforestated, the workers of private respondents
were actually allowed to enter the petitioners' premises, thus, giving them control and possession of the
goods. At this juncture, it is even unnecessary to discuss the issue of delivery in relation to the right of
rescission nor to rely on Article 1597. In every contract which contains reciprocal obligations, the right to
rescind is always implied under Article 1191 of the Civil Code in case one of the parties fails to comply
with his obligations. 19
The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for slight or
casual breach of the contract. 20 Here, petitioners claim that the breach is so substantial as to justify
rescission, not only because the Letter of Credit was not opened on May 15, 1983 as stipulated in the
contract but also because of the following factors: (1) the Letter of Credit, although opened in favor of
petitioners was made against the account of a certain Marsteel Alloy Corporation, instead of private
respondent's account; (2) the Letter of Credit referred to "assorted steel scrap" instead of "scrap iron
and junk" as provided in the contract; (3) the Letter of Credit placed the quantity of the goods at "500
MT" while the contract mentioned "an undetermined quantity of scrap iron and junk"; (4) no amount
from the Letter of Credit will be released unless accompanied by a Certificate of Acceptance; and (5)
the Letter of Credit had an expiry date.
I am not convinced that the above circumstances may be characterized as so substantial and
fundamental as to defeat the object of the parties in making the agreement. 21 None of the alleged
defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that the
purpose of the opening of a Letter of Credit is to effect payment. The above-mentioned factors could
not have prevented such payment. It is also significant to note that petitioners sent a telegram to private
respondents on May 23, 1983 cancelling the contract. This was before they had even received on May
26, 1983 the notice from the bank about the opening of the Letter of Credit. How could they have made
a judgment on the materiality of the provisions of the Letter of Credit for purposes of rescinding the
contract even before setting eyes on said document?
To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on May
15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the eleven-day
delay a substantial breach of the contract as could justify the rescission of the contract?
In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held that a delay in payment for twenty (20)
days was not a violation of an essential condition of the contract which would warrant rescission for
non-performance. In the instant case, the contract is bereft of any suggestion that time was of the
essence. On the contrary, it is noted that petitioners allowed private respondents' men to dig and
remove the scrap iron located in petitioners' premises between May 17, 1983 until May 30, 1983 or
beyond the May 15, 1983 deadline for the opening of the Letter of Credit. Hence, in the absence of any
indication that the time was of the essence, the eleven-day delay must be deemed a casual breach
which cannot justify a rescission.
Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. 23 since, like this
case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip, after the
buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19, 1946 to the
buyer accepting the offer but on condition that the latter opens a Letter of Credit within 48 hours. It was
not until December 26, 1946, however, that the Letter of Credit was opened. The Court, speaking
through Justice Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller
was not obliged to deliver the goods.
Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected
contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation process.
The seller's qualified acceptance in Sycip served as a counter offer which prevented the contract from
being perfected. Only an absolute and unqualified acceptance of a definite offer manifests the consent
necessary to perfect a contract. 24 Second, the Court found in Sycip that time was of the essence for
the seller who was anxious to sell to other buyers should the offeror fail to open the Letter of Credit
within the stipulated time. In contrast, there are no indicia in this case that can lead one to conclude that
time was of the essence for petitioner as would make the eleven-day delay a fundamental breach of the
contract.
In sum, to my mind, both the trial court and the respondent Court of Appeals committed no reversible
error in their appreciation of the agreement in question as a contract of sale and not a contract to sell,
as well as holding that the breach of the contract was not substantial and, therefore, petitioners were
not justified in law in rescinding the agreement.
PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of Appeals
AFFIRMED.
G.R. No. 170405 February 2, 2010
RAYMUNDO S. DE LEON, Petitioner,
vs.
BENITA T. ONG.1 Respondent.
DECISION
CORONA, J.:
On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land 2 with improvements
situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real
Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized
deed of absolute sale with assumption of mortgage3 stating:
xxx xxx xxx
That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1
million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the
entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a
manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real
estate together with the buildings and other improvements existing thereon, situated in [Barrio]
Mayamot, Antipolo, Rizal under the following terms and conditions:
1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND
FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in
favor of [respondent] without any further cost whatsoever;
2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR
THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS AND LOAN, 4 Cainta, Rizal
(emphasis supplied)
xxx xxx xxx
Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other
hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing
it to accept payment from respondent and release the certificates of title.
Thereafter, respondent undertook repairs and made improvements on the properties. 5 Respondent
likewise informed RSLAI of her agreement with petitioner for her to assume petitioners outstanding
loan. RSLAI required her to undergo credit investigation.
Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria
after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus
proceeded to RSLAI to inquire about the credit investigation. However, she was informed that petitioner
had already paid the amount due and had taken back the certificates of title.
Respondent persistently contacted petitioner but her efforts proved futile.
On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the
second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo,
Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March
10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived
her of the properties.
Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and
consequently prayed for the dismissal of the complaint. He claimed that since the transaction was
subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a
contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise.
Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore,
he made a counter-claim for damages as respondent filed the complaint allegedly with gross and
evident bad faith.
Because respondent was a licensed real estate broker, the RTC concluded that she knew that the
validity of the sale was subject to a condition. The perfection of a contract of sale depended on RSLAIs
approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioners
obligation, the RTC held that the sale was never perfected.
In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and
ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys fees and the cost of
suit.
Aggrieved, respondent appealed to the Court of Appeals (CA), 8 asserting that the court a quo erred in
dismissing the complaint.
The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on
the sale and held that the parties entered into a contract of sale. Consequently, because petitioner no
longer owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it
found petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the
properties.
In a decision dated July 22, 2005, 9 the CA upheld the sale to respondent and nullified the sale to Viloria.
It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to RSLAI).
Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent and pay
her P50,000 moral damages and P15,000 exemplary damages.
Petitioner moved for reconsideration but it was denied in a resolution dated November 11,
2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of
sale or a contract to sell.
Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject
to a suspensive condition, that is, the approval by RSLAI of respondents assumption of mortgage.
Because RSLAI did not allow respondent to assume his (petitioners) obligation, the condition never
materialized. Consequently, there was no sale.
Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already
conveyed full ownership of the subject properties upon the execution of the deed.
We modify the decision of the CA.
Contract of Sale or Contract to Sell?
The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it
was a contract to sell while the CA held that it was a contract of sale.
In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of
the contract. Should the buyer default in the payment of the purchase price, the seller may either sue
for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the
price is therefore a negative resolutory condition.12
On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not
acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer
defaults in the payment thereof, the seller can only sue for damages.13
The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to
respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to the
manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of
the deed, with the balance 15payable directly to RSLAI (on behalf of petitioner) within a reasonable
time.16 Nothing in said instrument implied that petitioner reserved ownership of the properties until the
full payment of the purchase price. 17 On the contrary, the terms and conditions of the deed only affected
the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized
contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and
conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of
ownership.
Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to
the buyer.18In this regard, Article 1498 of the Civil Code 19 provides that, as a rule, the execution of a
notarized deed of sale is equivalent to the delivery of a thing sold.
In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover,
not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to
receive payment from respondent and release his certificates of title to her. The totality of petitioners
acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to
respondent. Clearly, it was a contract of sale the parties entered into.
Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition
that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as
petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates
of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Void Sale Or Double Sale?
Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two
separate occasions.20 However, the second sale was not void for the sole reason that petitioner had
previously sold the same properties to respondent. On this account, the CA erred.
This case involves a double sale as the disputed properties were sold validly on two separate
occasions by the same seller to the two different buyers in good faith.
Article 1544 of the Civil Code provides:
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith. (emphasis supplied)
This provision clearly states that the rules on double or multiple sales apply only to purchasers in good
faith. Needless to say, it disqualifies any purchaser in bad faith.
A purchaser in good faith is one who buys the property of another without notice that some other
person has a right to, or an interest in, such property and pays a full and fair price for the same at the
time of such purchase, or before he has notice of some other persons claim or interest in the
property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller
and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the
sellers title.
Was respondent a purchaser in good faith? Yes.
Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI.
According to her agreement with petitioner, respondent had the obligation to assume the balance of
petitioners outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and
of her assumption of petitioners obligation. However, because petitioner surreptitiously paid his
outstanding obligation and took back her certificates of title, petitioner himself rendered respondents
obligation to assume petitioners indebtedness to RSLAI impossible to perform.
Article 1266 of the Civil Code provides:
Article 1266. The debtor in obligations to do shall be released when the prestation become legally or
physically impossible without the fault of the obligor.
Since respondents obligation to assume petitioners outstanding balance with RSLAI became
impossible without her fault, she was released from the said obligation. Moreover, because petitioner
himself willfully prevented the condition vis--vis the payment of the remainder of the purchase price,
the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes,
therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have
fully complied with the condition of the payment of the remainder of the purchase price.
Respondent was not aware of any interest in or a claim on the properties other than the mortgage to
RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the
latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules
on double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with
the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner
thereof.
In this instance, petitioner delivered the properties to respondent when he executed the notarized
deed22 and handed over to respondent the keys to the properties. For this reason, respondent took
actual possession and exercised control thereof by making repairs and improvements thereon. Clearly,
the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful
owner of the properties.
Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed
fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the
expense of petitioner.
Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because
the provisions, terms and conditions of the contract constitute the law between the parties. Moreover,
the deed itself provided that the assumption of mortgage "was without any further cost whatsoever."
Petitioner, on the other hand, must deliver the certificates of title to respondent. We likewise affirm the
award of damages.
WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in
CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T.
Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing the balance of the
purchase price as provided in their March 10, 1993 agreement.
Costs against petitioner.
SO ORDERED.