SECOND DIVISION

G.R. No. 167615, January 11, 2016

SPOUSES ALEXANDER AND JULIE LAM, DOING BUSINESS UNDER THE NAME AND STYLE
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY", Petitioners, v. KODAK
PHILIPPINES, LTD., Respondent.

DECISION

LEONEN, J.:

This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30, 2005 Decision1and
September 9, 2005 Amended Decision2 of the Court of Appeals, which modified the February 26, 1999
Decision3 of the Regional Trial Court by reducing the amount of damages awarded to petitioners Spouses
Alexander and Julie Lam (Lam Spouses).4

The Lam Spouses argue that respondent Kodak Philippines, Ltd.'s breach of their contract of sale entitles
them to damages more than the amount awarded by the Court of Appeals.5

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL6 (Minilab Equipment) in the
amount of P1,796,000.00 per unit,7 with the following terms: chanRoblesvirtualLawlibrary

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao
del Norte), and your existing Multicolor photo counter in Cotabato City under the following terms and
conditions:chanRoblesvirtualLawlibrary

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on prevailing
equipment price provided said equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND
PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the balance shall be re-
amortized for the remaining 36 months and the prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.

* Secured with PDCs; 1st monthly amortization due 45 days after installation[.]8 cralawlawlibrary

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum,
Davao Province.9 The delivered unit was installed by Noritsu representatives on March 9, 1992.10 The Lam
Spouses issued postdated checks amounting to P35,000.00 each for 12 months as payment for the first
delivered unit, with the first check due on March 31, 1992.11

The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March 31, 1992
allegedly due to insufficiency of funds.12 The same request was made for the check due on April 30, 1992.
However, both checks were negotiated by Kodak Philippines, Ltd. and were honored by the depository
bank.13 The 10 other checks were subsequently dishonored after the Lam Spouses ordered the depository
bank to stop payment.14

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it delivered
together with its accessories.15 The Lam Spouses ignored the demand but also rescinded the contract
through the letter dated November 18, 1992 on account of Kodak Philippines, Ltd.'s failure to deliver the two
(2) remaining Minilab Equipment units.16

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of sum of
money. The case was raffled to Branch 61 of the Regional Trial Court, Makati City.17 The Summons and a
copy of Kodak Philippines, Ltd.'s Complaint was personally served on the Lam Spouses.18

The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial brief despite
being given extensions.19 Thus, on July 30, 1993, they were declared in default.20 Kodak Philippines, Ltd.
presented evidence ex-parte.21 The trial court issued the Decision in favor of Kodak Philippines, Ltd. ordering
the seizure of the Minilab Equipment, which included the lone delivered unit, its standard accessories, and a
separate generator set.22 Based on this Decision, Kodak Philippines, Ltd. was able to obtain a writ of seizure
on December 16, 1992 for the Minilab Equipment installed at the Lam Spouses' outlet in Tagum, Davao
Province.23 The writ was enforced on December 21, 1992, and Kodak Philippines, Ltd. gained possession of
the Minilab Equipment unit, accessories, and the generator set.24

The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders issued by the trial
court dated July 30, 1993 and August 13, 1993. These Orders were subsequently set aside by the Court of
Appeals Ninth Division, and the case was remanded to the trial court for pre-trial.25 cralawred

On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V. Gorospe,
Jr.,26 who had issued the writ of seizure.27 The ground for the motion for inhibition was not provided.
Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the case was reassigned to Branch 65 of
the Regional Trial Court, Makati City on October 3, 1995.28

In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak Philippines, Ltd.
defaulted in the performance of its obligation under its Letter Agreement with the Lam Spouses.29 It held
that Kodak Philippines, Ltd.'s failure to deliver two (2) out of the three (3) units of the Minilab Equipment
caused the Lam Spouses to stop paying for the rest of the installments.30 The trial court noted that while the
Letter Agreement did not specify a period within which the delivery of all units was to be made, the Civil
Code provides "reasonable time" as the standard period for compliance: chanRoblesvirtualLawlibrary

The second paragraph of Article 1521 of the Civil Code provides: chanRoblesvirtualLawlibrary

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them
is fixed, the seller is bound to send them within a reasonable time.
cralawlawlibrary

What constitutes reasonable time is dependent on the circumstances availing both on the part of the seller
and the buyer. In this case, delivery of the first unit was made five (5) days after the date of the agreement.
Delivery of the other two (2) units, however, was never made despite the lapse of at least three (3)
months.31 cralawlawlibrary

Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all three (3) purchased
units within a reasonable time.32

The trial court found: chanRoblesvirtualLawlibrary

Kodak would have the court believe that it did not deliver the other two (2) units due to the failure of
defendants to make good the installments subsequent to the second. The court is not convinced. First of all,
there should have been simultaneous delivery on account of the circumstances surrounding the transaction.
. . . Even after the first delivery ... no delivery was made despite repeated demands from the defendants
and despite the fact no installments were due. Then in March and in April (three and four months
respectively from the date of the agreement and the first delivery) when the installments due were both
honored, still no delivery was made.

Second, although it might be said that Kodak was testing the waters with just one delivery - determining
first defendants' capacity to pay - it was not at liberty to do so. It is implicit in the letter agreement that
delivery within a reasonable time was of the essence and failure to so deliver within a reasonable time and
despite demand would render the vendor in default.
....

Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of defendants'
inability to pay, non-delivery during the two (2) months that payments were honored is unjustified.33 cralawlawlibrary

Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the first unit, they
became liable for the fair value of the goods received: chanRoblesvirtualLawlibrary

On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the Civil Code, in the
event the buyer accepts incomplete delivery and uses the goods so delivered, not then knowing that there
would not be any further delivery by the seller, the buyer shall be liable only for the fair value to him of the
goods received. In other words, the buyer is still liable for the value of the property received. Defendants
were under obligation to pay the amount of the unit. Failure of delivery of the other units did not thereby
give unto them the right to suspend payment on the unit delivered. Indeed, in incomplete deliveries, the
buyer has the remedy of refusing payment unless delivery is first made. In this case though, payment for
the two undelivered units have not even commenced; the installments made were for only one (1) unit.

Hence, Kodak is right to retrieve the unit delivered.34 cralawlawlibrary

The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to deliver the
remaining units did not give them the right to suspend payment for the unit already delivered.35However,
the trial court held that since Kodak Philippines, Ltd. had elected to cancel the sale and retrieve the
delivered unit, it could no longer seek payment for any deterioration that the unit may have suffered while
under the custody of the Lam Spouses.36

As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to mislead the court by
claiming that it had delivered the generator set with its accessories to the Lam Spouses, when the evidence
showed that the Lam Spouses had purchased it from Davao Ken Trading, not from Kodak Philippines,
Ltd.37 Thus, the generator set that Kodak Philippines, Ltd. wrongfully took from the Lam Spouses should be
replaced.38

The dispositive portion of the Regional Trial Court Decision reads: chanRoblesvirtualLawlibrary

PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the following: chanRoblesvirtualLawlibrary

1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum
from December 1992 until fully paid; and

2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal Ave., Manila
outlets.

SO ORDERED.39
cralawlawlibrary
ChanRoblesVirtualawlibrary

On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an issue the Regional
Trial Court's failure to order Kodak Philippines, Ltd. to pay: (1) P2,040,000 in actual damages; (2)
P50,000,000 in moral damages; (3) P20,000,000 in exemplary damages; (4) P353,000 in attorney's fees;
and (5) P3 00,000 as litigation expenses.40 The Lam Spouses did not appeal the Regional Trial Court's award
for the generator set and the renovation expenses.41

Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals42 dismissed it on December 16,
2002 for Kodak Philippines, Ltd.'s failure to file its appellant's brief, without prejudice to the continuation of
the Lam Spouses' appeal.43 The Court of Appeals' December 16, 2002 Resolution denying Kodak Philippines,
Ltd.'s appeal became final and executory on January 4, 2003.44

In the Decision45 dated March 30, 2005, the Court of Appeals Special Fourteenth Division modified the
February 26, 1999 Decision of the Regional Trial Court: chanRoblesvirtualLawlibrary

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the Regional
Trial Court, Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED.Plaintiff-appellant is ordered to pay
the following:
 1. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and

2. P440.000.00 as actual damages;

3. P25,000.00 as moral damages; and

4. P50,000.00 as exemplary damages.

SO ORDERED.46 (Emphasis supplied)

cralawlawlibrary

The Court of Appeals agreed with the trial court's Decision, but extensively discussed the basis for the
modification of the dispositive portion.

The Court of Appeals ruled that the Letter Agreement executed by the parties showed that their obligations
were susceptible of partial performance. Under Article 1225 of the New Civil Code, their obligations are
divisible: chanRoblesvirtualLawlibrary

In determining the divisibility of an obligation, the following factors may be considered, to wit: (1) the will or
intention of the parties, which may be expressed or presumed; (2) the objective or purpose of the stipulated
prestation; (3) the nature of the thing; and (4) provisions of law affecting the prestation.

Applying the foregoing factors to this case, We found that the intention of the parties is to be bound
separately for each Minilab Equipment to be delivered as shown by the separate purchase price for each of
the item, by the acceptance ofSps. Lam of separate deliveries for the first Minilab Equipment and for those
of the remaining two and the separate payment arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount of the purchase price of the Minilab Equipment
delivered considering that Kodak had already completely fulfilled its obligation to deliver the same.. ..

Third, it is also evident that the contract is one that is severable in character as demonstrated by the
separate purchase price for each of the minilab equipment. "If the part to be performed by one party
consists in several distinct and separate items and the price is apportioned to each of them, the contract will
generally be held to be severable. In such case, each distinct stipulation relating to a separate subject
matter will be treated as a separate contract." Considering this, Kodak's breach of its obligation to deliver
the other two (2) equipment cannot bar its recovery for the full payment of the equipment already
delivered. As far as Kodak is concerned, it had already fully complied with its separable obligation to deliver
the first unit of Minilab Equipment.47 (Emphasis supplied)
cralawlawlibrary

The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the delivered Minilab
Equipment unit and its standard accessories are concerned, since Kodak Philippines, Ltd. had the right to
possess it:48 chanroblesvirtuallawlibrary

The purchase price of said equipment is P1,796,000.00 which, under the agreement is payable with forty
eight (48) monthly amortization. It is undisputed that Sps. Lam made payments which amounted to Two
Hundred Seventy Thousand Pesos (P270,000.00) through the following checks: Metrobank Check Nos.
00892620 and 00892621 dated 31 March 1992 and 30 April 1992 respectively in the amount of Thirty Five
Thousand Pesos (P35,000.0O) each, and BPI Family Check dated 31 July 1992 amounting to Two Hundred
Thousand Pesos (P200,000.00). This being the case, Sps. Lam are still liable to Kodak in the amount of One
Million Five Hundred Twenty Six Thousand Pesos (P1,526,000.00), which is payable in several monthly
amortization, pursuant to the Letter Agreement. However, Sps. Lam admitted that sometime in May 1992,
they had already ordered their drawee bank to stop the payment on all the other checks they had issued to
Kodak as payment for the Minilab Equipment delivered to them. Clearly then, Kodak hafdj the right to
repossess the said equipment, through this replevin suit. Sps. Lam cannot excuse themselves from paying in
full the purchase price of the equipment delivered to them on account of Kodak's breach of the contract to
deliver the other two (2) Minilab Equipment, as contemplated in the Letter Agreement.49 (Emphasis
supplied) cralawlawlibrary

Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam Spouses to pay
the remaining balance for the first delivered unit is based on the second sentence of Article 1592 of the New
Civil Code.50 The Lam Spouses' receipt and use of the Minilab Equipment before they knew that Kodak
Philippines, Ltd. would not deliver the two (2) remaining units has made them liable for the unpaid portion
of the purchase price.51

The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with the Lam
Spouses in the letter dated October 14, 1992.52 The rescission was based on Article 1191 of the New Civil
Code, which provides: "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."53 In its letter, Kodak Philippines, Ltd.
demanded that the Lam Spouses surrender the lone delivered unit of Minilab Equipment along with its
standard accessories.54

The Court of Appeals likewise noted that the Lam Spouses rescinded the contract through its letter dated
November 18, 1992 on account of Kodak Philippines, Inc.'s breach of the parties' agreement to deliver the
two (2) remaining units.55

As a result of this rescission under Article 1191, the Court of Appeals ruled that "both parties must be
restored to their original situation, as far as practicable, as if the contract was never entered into."56 The
Court of Appeals ratiocinated that Article 1191 had the effect of extinguishing the obligatory relation as if
one was never created:57 chanroblesvirtuallawlibrary

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 to release parties from further obligations to each other but abrogate it from
the beginning and restore parties to relative positions which they would have occupied had no contract been
made.58 cralawlawlibrary

The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its standard
accessories, while Kodak Philippines, Ltd. was ordered to return the amount of P270,000.00, tendered by
the Lam Spouses as partial payment.59

As to the actual damages sought by the parties, the Court of Appeals found that the Lam Spouses were able
to substantiate the following: chanRoblesvirtualLawlibrary

Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract of lease which
made the Sps. Lam liable, by way of advance payment, in the amount of P40,000.00, the same being
intended for the repair of the flooring of the leased premises; and lastly, the payment of P300,000.00, as
compromise agreement for the pre-termination of the contract of lease with Ruales.60 cralawlawlibrary

The total amount is P440,000.00. The Court of Appeals found that all other claims made by the Lam
Spouses were not supported by evidence, either through official receipts or check payments.61

As regards the generator set improperly seized from Kodak Philippines, Ltd. on the basis of the writ of
replevin, the Court of Appeals found that there was no basis for the Lam Spouses' claim for reasonable
rental of P5,000.00. It held that the trial court's award of 12% interest, in addition to the cost of the
generator set in the amount of P130,000.00, is sufficient compensation for whatever damage the Lam
Spouses suffered on account of its improper seizure.62

The Court of Appeals also ruled on the Lam Spouses' entitlement to moral and exemplary damages, as well
as attorney's fees and litigation expenses: chanRoblesvirtualLawlibrary

In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have manifested bad faith and
malevolence because as earlier ruled upon, it was well within its right to do the same. However, with respect
to the seizure of the generator set, where Kodak misrepresented to the court a quo its alleged right over the
said item, Kodak's bad faith and abuse of judicial processes become self-evident. Considering the off-setting
circumstances attendant, the amount of P25,000.00 by way of moral damages is considered sufficient.

In addition, so as to serve as an example to the public that an application for replevin should not be
accompanied by any false claims and misrepresentation, the amount of P50,000.00 by way of exemplary
damages should be pegged against Kodak.

With respect to the attorney's fees and litigation expenses, We find that there is no basis to award Sps. Lam
the amount sought for.63 cralawlawlibrary

Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it was denied for lack
of merit.64 However, the Court of Appeals noted that the Lam Spouses' Opposition correctly pointed out that
the additional award of P270,000.00 made by the trial court was not mentioned in the decretal portion of
the March 30, 2005 Decision: chanRoblesvirtualLawlibrary

Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to the amount of Two
Hundred Seventy Thousand (P270,000.00) which plaintiff-appellant should return to the defendants-
appellants, the Court also ruled that defendants-appellants should, in turn, relinquish possession of the
Minilab Equipment and the standard accessories to plaintiff-appellant. Inadvertently, these material items
were not mentioned in the decretal portion of the Decision. Hence, the proper correction should herein be
made.65 cralawlawlibrary

The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak Philippines, Ltd.
filed its Motion for Reconsideration66 before the Court of Appeals on April 22, 2005.

While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this court, the Court
of Appeals Special Fourteenth Division, acting on Kodak Philippines, Ltd.'s Motion for Reconsideration, issued
the Amended Decision67 dated September 9, 2005. The dispositive portion of the Decision reads: chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, this Court resolved that: chanRoblesvirtualLawlibrary

A. Plaintiff-appellant's Motion for Reconsideration is hereby DENIED for lack of merit.

B. The decretal portion of the 30 March 2005 Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the Regional Trial
Court, Branch 65 in Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is ordered to pay the
following:
a. P270,000.00 representing the partial payment made on the Minilab equipment.

b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum from
December 1992 until fully paid;

c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages; and

e. P50,000.00 as exemplary damages.

Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-appellant the Minilab
equipment and the standard accessories delivered by plaintiff-appellant.

SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
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Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd. filed a Motion for
Extension of Time to File an Appeal by Certiorari under Rule 45 of the 1997 Rules of Civil Procedure before
this court.69

This was docketed as G.R. No. 169639. In the Motion for Consolidation dated November 2, 2005, the Lam
Spouses moved that G.R. No. 167615 and G.R. No. 169639 be consolidated since both involved the same
parties, issues, transactions, and essential facts and circumstances.70

In the Resolution dated November 16, 2005, this court noted the Lam Spouses' September 23 and
September 30, 2005 Manifestations praying that the Court of Appeals' September 9, 2005 Amended
Decision be considered in the resolution of the Petition for Review on Certiorari.71 It also granted the Lam
Spouses' Motion for Consolidation.72

In the Resolution73 dated September 20, 2006, this court deconsolidated G.R No. 167615 from G.R. No.
169639 and declared G.R. No. 169639 closed and terminated since Kodak Philippines, Ltd. failed to file its
Petition for Review.

II

We resolve the following issues: chanRoblesvirtualLawlibrary

First, whether the contract between petitioners Spouses Alexander and Julie Lam and respondent Kodak
Philippines, Ltd. pertained to obligations that are severable, divisible, and susceptible of partial performance
under Article 1225 of the New Civil Code; and

Second, upon rescission of the contract, what the parties are entitled to under Article 1190 and Article 1522
of the New Civil Code.

Petitioners argue that the Letter Agreement it executed with respondent for three (3) Minilab Equipment
units was not severable, divisible, and susceptible of partial performance. Respondent's recovery of the
delivered unit was unjustified.74

Petitioners assert that the obligations of the parties were not susceptible of partial performance since the
Letter Agreement was for a package deal consisting of three (3) units.75 For the delivery of these units,
petitioners were obliged to pay 48 monthly payments, the total of which constituted one debt.76 Having
relied on respondent's assurance that the three units would be delivered at the same time, petitioners
simultaneously rented and renovated three stores in anticipation of simultaneous operations.77Petitioners
argue that the divisibility of the object does not necessarily determine the divisibility of the obligation since
the latter is tested against its susceptibility to a partial performance.78 They argue that even if the object is
susceptible of separate deliveries, the transaction is a indivisible if the parties intended the realization of all
parts of the agreed obligation.79

Petitioners support the claim that it was the parties' intention to have an indivisible agreement by asserting
that the payments they made to respondent were intended to be applied to the whole package of three
units.80 The postdated checks were also intended as initial payment for the whole package.81The separate
purchase price for each item was merely intended to particularize the unit prices, not to negate the
indivisible nature of their transaction.82 As to the issue of delivery, petitioners claim that their acceptance of
separate deliveries of the units was solely due to the constraints faced by respondent, who had sole control
over delivery matters.83

With the obligation being indivisible, petitioners argue that respondent's failure to comply with its obligation
to deliver the two (2) remaining Minilab Equipment units amounted to a breach. Petitioners claim that the
breach entitled them to the remedy of rescission and damages under Article 1191 of the New Civil Code.84

Petitioners also argue that they are entitled to moral damages more than the P50,000.00 awarded by the
Court of Appeals since respondent's wrongful act of accusing them of non-payment of their obligations
caused them sleepless nights, mental anguish, and wounded feelings.85 They further claim that, to serve as
an example for the public good, they are entitled to exemplary damages as respondent, in making false
allegations, acted in evident bad faith and in a wanton, oppressive, capricious, and malevolent manner.86

Petitioners also assert that they are entitled to attorney's fees and litigation expenses under Article 2208 of
the New Civil Code since respondent's act of bringing a suit against them was baseless and malicious. This
prompted them to engage the services of a lawyer.87

Respondent argues that the parties' Letter Agreement contained divisible obligations susceptible of partial
performance as defined by Article 1225 of the New Civil Code.88 In respondent's view, it was the intention of
the parties to be bound separately for each individually priced Minilab Equipment unit to be delivered to
different outlets:89
chanroblesvirtuallawlibrary

The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at their Tagum, Davao del
Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of these units [is] independent from one another,
as many of them may perform its own job without the other. Clearly the objective or purpose of the
prestation, the obligation is divisible.

The nature of each unit of the three (3) Minilab Equipment is such that one can perform its own functions,
without awaiting for the other units to perform and complete its job. So much so, the nature of the object of
the Letter Agreement is susceptible of partial performance, thus the obligation is divisible.90 cralawlawlibrary

With the contract being severable in character, respondent argues that it performed its obligation when it
delivered one unit of the Minilab Equipment.91 Since each unit could perform on its own, there was no need
to await the delivery of the other units to complete its job.92 Respondent then is of the view that when
petitioners ordered the depository bank to stop payment of the issued checks covering the first delivered
unit, they violated their obligations under the Letter Agreement since respondent was already entitled to full
payment.93

Respondent also argues that petitioners benefited from the use of the Minilab Equipment for 10 months
from March to December 1992 despite having paid only two (2) monthly installments.94 Respondent avers
that the two monthly installments amounting to P70,000.00 should be the subject of an offset against the
amount the Court of Appeals awarded to petitioners.95

Respondent further avers that petitioners have no basis for claiming damages since the seizure and recovery
of the Minilab Equipment was not in bad faith and respondent was well within its right.96

III

The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement97 as basis of their respective obligations. Written by respondent's
Jeffrey T. Go and Antonio V. Mines and addressed to petitioner Alexander Lam, the Letter Agreement
contemplated a "package deal" involving three (3) units of the Kodak Minilab System 22XL, with the
following terms and conditions: chanRoblesvirtualLawlibrary

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao
del Norte), and your existing Multicolor photo counter in Cotabato City under the following terms and
conditions:chanRoblesvirtualLawlibrary

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on prevailing
equipment price provided said equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND
PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the balance shall be re-
amortized for the remaining 36 months and the prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.

*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]98 cralawlawlibrary

Based on the foregoing, the intention of the parties is for there to be a single transaction covering all three
(3) units of the Minilab Equipment. Respondent's obligation was to deliver all products purchased under a
"package," and, in turn, petitioners' obligation was to pay for the total purchase price, payable in
installments.

The intention of the parties to bind themselves to an indivisible obligation can be further discerned through
their direct acts in relation to the package deal. There was only one agreement covering all three (3) units of
the Minilab Equipment and their accessories. The Letter Agreement specified only one purpose for the buyer,
which was to obtain these units for three different outlets. If the intention of the parties were to have a
divisible contract, then separate agreements could have been made for each Minilab Equipment unit instead
of covering all three in one package deal. Furthermore, the 19% multiple order discount as contained in the
Letter Agreement was applied to all three acquired units.99 The "no downpayment" term contained in the
Letter Agreement was also applicable to all the Minilab Equipment units. Lastly, the fourth clause of the
Letter Agreement clearly referred to the object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the Court of Appeals
highlighted: (a) the separate purchase price of each item; (b) petitioners' acceptance of separate deliveries
of the units; and (c) the separate payment arrangements for each unit.100 However, through the specified
terms and conditions, the tenor of the Letter Agreement indicated an intention for a single transaction. This
intent must prevail even though the articles involved are physically separable and capable of being paid for
and delivered individually, consistent with the New Civil Code: chanRoblesvirtualLawlibrary

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those which
are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties. (Emphasis supplied) cralawlawlibrary

In Nazareno v. Court of Appeals,101 the indivisibility of an obligation is tested against whether it can be the
subject of partial performance: chanRoblesvirtualLawlibrary

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the
thing which is the object thereof. The indivisibility refers to the prestation and not to the object thereof. In
the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The
obligation is clearly indivisible because the performance of the contract cannot be done in parts, otherwise
the value of what is transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility
of a contract on the number of obligors.102 (Emphasis supplied, citation omitted) cralawlawlibrary

There is no indication in the Letter Agreement that the units petitioners ordered were covered by three (3)
separate transactions. The factors considered by the Court of Appeals are mere incidents of the execution of
the obligation, which is to deliver three units of the Minilab Equipment on the part of respondent and
payment for all three on the part of petitioners. The intention to create an indivisible contract is apparent
from the benefits that the Letter Agreement afforded to both parties. Petitioners were given the 19%
discount on account of a multiple order, with the discount being equally applicable to all units that they
sought to acquire. The provision on "no downpayment" was also applicable to all units. Respondent, in turn,
was entitled to payment of all three Minilab Equipment units, payable by installments.

IV

With both parties opting for rescission of the contract under Article 1191, the Court of Appeals correctly
ordered for restitution.

The contract between the parties is one of sale, where one party obligates himself or herself to transfer the
ownership and deliver a determinate thing, while the other pays a certain price in money or its
equivalent.103 A contract of sale is perfected upon the meeting of minds as to the object and the price, and
the parties may reciprocally demand the performance of their respective obligations from that point on.104

The Court of Appeals correctly noted that respondent had rescinded the parties' Letter Agreement through
the letter dated October 14, 1992.105 It likewise noted petitioners' rescission through the letter dated
November 18, 1992.106 This rescission from both parties is founded on Article 1191 of the New Civil
Code: chanRoblesvirtualLawlibrary

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 fulfilment and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission, even after he has chosen fulfilment, if the latter
should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
cralawlawlibrary

Rescission under Article 1191 has the effect of mutual restitution.107 In Velarde v. Court of Appeals:108 chanroblesvirtuallawlibrary

Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.
....
Rescission creates the obligation to return the object of the contract. It can be carried out only when the one
who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it
and release the parties from further obligations to each other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no contract has been made. (Emphasis supplied, citations
omitted)cralawlawlibrary

The Court of Appeals correctly ruled that both parties must be restored to their original situation as far as
practicable, as if the contract was never entered into. Petitioners must relinquish possession of the delivered
Minilab Equipment unit and accessories, while respondent must return the amount tendered by petitioners
as partial payment for the unit received. Further, respondent cannot claim that the two (2) monthly
installments should be offset against the amount awarded by the Court of Appeals to petitioners because the
effect of rescission under Article 1191 is to bring the parties back to their original positions before the
contract was entered into. Also in Velarde: chanRoblesvirtualLawlibrary

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation,
not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall
govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution
is required to bring back the parties to their original situation prior to the inception of the contract.
Accordingly, the initial payment of P800.000 and the corresponding mortgage payments in the amounts of
P27,225, P23.000 and P23.925 (totaling P874,150.00) advanced by petitioners should be returned by
private respondents, lest the latter unjustly enrich themselves at the expense of the former.110] (Emphasis
supplied) cralawlawlibrary

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked because the
power to resolve is implied in reciprocal obligations.111 The right to resolve allows an injured party to
minimize the damages he or she may suffer on account of the other party's failure to perform what is
incumbent upon him or her.112 When a party fails to comply with his or her obligation, the other party's right
to resolve the contract is triggered.113 The resolution immediately produces legal effects if the non-
performing party does not question the resolution.114 Court intervention only becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes the resolution of the
contract.115 Since both parties in this case have exercised their right to resolve under Article 1191, there is
no need for a judicial decree before the resolution produces effects.

The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall only pertain to
questions of law.116 It is not the duty of this court to re-evaluate the evidence adduced before the lower
courts.117 Furthermore, unless the petition clearly shows that there is grave abuse of discretion, the findings
of fact of the trial court as affirmed by the Court of Appeals are conclusive upon this court.118 In Lorzano v.
Tabayag, Jr.:119 chanroblesvirtuallawlibrary

For a question to be one of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact.
....

For the same reason, we would ordinarily disregard the petitioner's allegation as to the propriety of the
award of moral damages and attorney's fees in favor of the respondent as it is a question of fact. Thus,
questions on whether or not there was a preponderance of evidence to justify the award of damages or
whether or not there was a causal connection between the given set of facts and the damage suffered by
the private complainant or whether or not the act from which civil liability might arise exists are questions of
fact.

Essentially, the petitioner is questioning the award of moral damages and attorney's fees in favor of the
respondent as the same is supposedly not fully supported by evidence. However, in the final analysis, the
question of whether the said award is fully supported by evidence is a factual question as it would
necessitate whether the evidence adduced in support of the same has any probative value. For a question to
be one of law, it must involve no examination of the probative value of the evidence presented by the
litigants or any of them.120 (Emphasis supplied, citations omitted) cralawlawlibrary

The damages awarded by the Court of Appeals were supported by documentary evidence.121 Petitioners
failed to show any reason why the factual determination of the Court of Appeals must be reviewed,
especially in light of their failure to produce receipts or check payments to support their other claim for
actual damages.122

Furthermore, the actual damages amounting to P2,040,000.00 being sought by petitioners123 must be
tempered on account of their own failure to pay the rest of the installments for the delivered unit. This
failure on their part is a breach of their obligation, for which the liability of respondent, for its failure to
deliver the remaining units, shall be equitably tempered on account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of Appeals:125 chanroblesvirtuallawlibrary

Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino
failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of
Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue
P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his
use of the P17,000.00, it is just that he should account for the interest thereon.126(Emphasis supplied) cralawlawlibrary

The award for moral and exemplary damages also appears to be sufficient. Moral damages are granted to
alleviate the moral suffering suffered by a party due to an act of another, but it is not intended to enrich the
victim at the defendant's expense.127 It is not meant to punish the culpable party and, therefore, must
always be reasonable vis-a-vis the injury caused.128 Exemplary damages, on the other hand, are awarded
when the injurious act is attended by bad faith.129 In this case, respondent was found to have
misrepresented its right over the generator set that was seized. As such, it is properly liable for exemplary
damages as an example to the public.130

However, the dispositive portion of the Court of Appeals Amended Decision dated September 9, 2005 must
be modified to include the recovery of attorney's fees and costs of suit in favor of petitioners. In Sunbanun
v. Go:131 chanroblesvirtuallawlibrary

Furthermore, we affirm the award of exemplary damages and attorney's fees. Exemplary damages may be
awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner which would justify an award of exemplary damages
under Article 2232 of the Civil Code.Since the award of exemplary damages is proper in this case, attorney's
fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil
Code.132(Emphasis supplied, citation omitted) cralawlawlibrary

Based on the amount awarded for moral and exemplary damages, it is reasonable to award petitioners
P20,000.00 as attorney's fees.

WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005 is AFFIRMED
with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie
Lam: chanRoblesvirtualLawlibrary

(a) P270,000.00, representing the partial payment made on the

Minilab Equipment;
 (b) P130,000.00, representing the amount of the generator set, plus
legal interest at 12% per annum from December 1992 until fully
paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard accessories to
respondent.

SO ORDERED. chanroblesvirtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

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

This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in
the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a
contract with any individual or juridical person for the exploration and development of the mining
claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be
extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on
Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap
Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis
provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the
mining claims in question, opening and paving roads within and outside their boundaries, making
other improvements and installing facilities therein for use in the development of the mines, and in
time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron
ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to
Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to
certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his
rights and interests over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out
of the first letter of credit covering the first shipment of iron ores and of the first amount
derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its
assigns, administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and
Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented
to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on
December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a
bonding company was put up by defendants to secure the payment of the P65,000.00 balance of
their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated
December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an actual sale of iron ore by the Larap
Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability
of said surety company would automatically expire on December 8, 1955. Both bonds were attached
to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two
executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier
entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap
Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question,
together with the improvements therein and the use of the name "Larap Iron Mines" and its good will,
in consideration of certain royalties. Fonacier likewise transferred, in the same document, the
complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the
Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right
to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed
the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for
the payment of the P65,000.00 balance of the price of the ore, consequential damages, and
attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon
by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount derived from the local
sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due
and demandable when the defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term:
i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected
within one year or before December 8, 1955; that the giving of security was a condition precedent to
Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000
tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit
"A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him,
jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until
payment, plus costs. From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in
contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain documents, filed by
appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that
the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been substantiated; and even if true, does
not make these appellants guilty of contempt, because what is under litigation in this appeal is
appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself.
As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in
view of the results that we have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee
Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term
and not one with a suspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of
iron ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his
rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together
with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-
FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of the iron ore
is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was
only a suspensive period or term. What characterizes a conditional obligation is the fact that its
efficacy or obligatory force (as distinguished from its demandability) is subordinated to the
happening of a future and uncertain event; so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed. That the parties to the
contract Exhibit "A" did not intend any such state of things to prevail is supported by several
circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of
Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at which it will be made. By the very terms of
the contract, therefore, the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of
a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without
getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a
bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on
one by a surety company; and the fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore
as a condition precedent, would be tantamount to leaving the payment at the discretion of the
debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore.
Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a
construction of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the
rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since
sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine,
provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be
actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were
viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit,
and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at
all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have
the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment;
or, in other words, whether or not they are entitled to take full advantage of the period granted them
for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially reduced the security of the vendor's
rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon
which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The
case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired
the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with
full knowledge that on its face it would automatically expire within one year was a waiver of its
renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose
and had nothing to gain barely; and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on
December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract (Exhibit "A") was executed,
either because the appellant debtors had impaired the securities originally given and thereby
forfeited any further time within which to pay; or because the term of payment was originally of no
more than one year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of
iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had
been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible
goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated
in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the
mass; and second, that the evidence shows that neither of the parties had actually measured of
weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the
volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic
meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made
in their contract for the measuring or weighing of the ore sold in order to complete or perfect the
sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such
measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of
the ore found in the mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So.
872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did
not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite
had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the
lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite
mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the short-delivery, was there really a
short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole
mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims
only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per
cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that
he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano
Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in disagreement, with appellants
claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that
the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of
iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical
Division of the Bureau of Mines, a government pensionado to the States and a mining engineering
graduate of the Universities of Nevada and California, with almost 22 years of experience in the
Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between
3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds
to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at
the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in
Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor of
3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of
24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was
practically impossible, so that a reasonable percentage of error should be allowed anyone making
an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract
Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of
damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to
appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as
charged by appellants, since Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs
against appellants.

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad,
JJ., concur.

SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL.,
INC., respondent.

DECISION
YNARES-SANTIAGO, J.:

Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation

engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing
business under the name and style Sans Enterprises, is a building
contractor. On February 22, 1990, petitioner ordered scaffolding equipments
from respondent worth P540,425.80. He paid a downpayment in the amount
[1]

of P150,000.00. The balance was made payable in ten monthly installments.

Respondent delivered the scaffoldings to petitioner. Petitioner was able to
[2]

pay the first two monthly installments. His business, however, encountered
financial difficulties and he was unable to settle his obligation to respondent
despite oral and written demands made against him. [3]

On October 11, 1990, petitioner and respondent executed a Deed of

Assignment, whereby petitioner assigned to respondent his receivables in the
[4]

amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of

the Deed provide:

WHEREAS, the ASSIGNOR is the contractor for the construction of a residential

house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty
Corporation;

WHEREAS, in the construction of the aforementioned residential house, the

ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE
payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE

for the purchase of the aforementioned scaffoldings now in the amount of Three
Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos
(P335,462.14);

NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty
Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine
Currency which represents part of the ASSIGNORs collectible from Jomero Realty
Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE
all collectibles amounting to the said amount of P335, 462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns,
the full power and authority to demand, collect, receive, compound, compromise and
give acquittance for the same or any part thereof, and in the name and stead of the said
ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its
successors and assigns that said debt is justly owing and due to the ASSIGNOR for
Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause
anything to be done to diminish or discharge said debt, or delay or to prevent the
ASSIGNEE, its successors or assigns, from collecting the same;

And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and
expense, execute and do all such further acts and deeds as shall be reasonably
necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these presents.
xxx (Italics supplied)
[5]

However, when respondent tried to collect the said credit from Jomero
Realty Corporation, the latter refused to honor the Deed of Assignment because
it claimed that petitioner was also indebted to it. On November 26, 1990,
[6]

respondent sent a letter to petitioner demanding payment of his obligation, but

[7]

petitioner refused to pay claiming that his obligation had been extinguished
when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery
of a sum of money against the petitioner before the Regional Trial Court of
Makati, Branch 147, which was docketed as Civil Case No. 91-074. [8]

During the trial, petitioner argued that his obligation was extinguished with
the execution of the Deed of Assignment of credit. Respondent, for its part,
presented the testimony of its employee, Almeda Baaga, who testified
that Jomero Realty refused to honor the assignment of credit because it claimed
that petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision dismissing the
[9]

complaint on the ground that the assignment of credit extinguished the

obligation. The decretal portion thereof provides:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor
of the defendant and against the plaintiff, dismissing the complaint and ordering the
plaintiff to pay the defendant attorneys fees in the amount of P25,000.00.
 Respondent appealed the decision to the Court of Appeals. On April 19,
2001, the appellate court rendered a decision, the dispositive portion of which
[10]

reads:

WHEREFORE, finding merit in this appeal, the court REVERSES the appealed
Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the
plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three
Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14)
with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint)
until fully paid and attorneys fees equivalent to 10% of the amount due and costs of
the suit.

SO ORDERED. [11]

In finding that the Deed of Assignment did not extinguish the obligation of
the petitioner to the respondent, the Court of Appeals held that (1) petitioner
failed to comply with his warranty under the Deed; (2) the object of the Deed
did not exist at the time of the transaction, rendering it void pursuant to Article
1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of
Assignment when he failed to execute and do all acts and deeds as shall be
necessary to effectually enable the respondent to recover the collectibles. [12]

Petitioner filed a motion for reconsideration of the said decision, which was
denied by the Court of Appeals. [13]

In this petition for review, petitioner assigns the following errors:

I

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR

IN DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND
VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY
CLAIM.

II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS OBLIGATION ON THE
WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY
THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF
THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND
ATTORNEYS FEES.[14]
 The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the
power to enforce it to the same extent as the assignor could enforce it against
the debtor. [15]

Corollary thereto, in dacion en pago, as a special mode of payment, the

debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. In order that there be a valid dation in
[16]

payment, the following are the requisites: (1) There must be the performance
of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person;
(2) There must be some difference between the prestation due and that which
is given in substitution (aliud pro alio); (3) There must be an agreement between
the creditor and debtor that the obligation is immediately extinguished by reason
of the performance of a prestation different from that due. The undertaking
[17]

really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged
against the debtors debt. As such, the vendor in good faith shall be responsible,
for the existence and legality of the credit at the time of the sale but not for the
solvency of the debtor, in specified circumstances. [18]

Hence, it may well be that the assignment of credit, which is in the nature of
a sale of personal property, produced the effects of a dation in payment which
[19]

may extinguish the obligation. However, as in any other contract of sale, the
[20]

vendor or assignor is bound by certain warranties. More specifically, the first

paragraph of Article 1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the
credit at the time of the sale, unless it should have been sold as doubtful; but not for
the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to

warrant the existence and legality of the credit at the time of the sale or
assignment. When Jomeroclaimed that it was no longer indebted to petitioner
since the latter also had an unpaid obligation to it, it essentially meant that its
obligation to petitioner has been extinguished by compensation. In other [21]

words, respondent alleged the non-existence of the credit and asserted its claim
to petitioners warranty under the assignment. Therefore, it behooved on
petitioner to make good its warranty and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed
of Assignment, to wit:

And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and
expense, execute and do all such further acts and deeds as shall be reasonably
necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these
presents. (underscoring ours)
[22]

Indeed, by warranting the existence of the credit, petitioner should be

deemed to have ensured the performance thereof in case the same is later
found to be inexistent. He should be held liable to pay to respondent the amount
of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to
pay respondent the sum of P335,462.14 with legal interest thereon. However,
we find that the award by the Court of Appeals of attorneys fees is without
factual basis. No evidence or testimony was presented to substantiate this
claim. Attorneys fees, being in the nature of actual damages, must be duly
substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of
Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to
pay respondent the sum of P335,462.14 with legal interest of 6% per annum
from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon
finality of this Decision, the rate of legal interest shall be 12% per annum,
inasmuch as the obligation shall thereafter become equivalent to a forbearance
of credit. The award of attorneys fees is DELETED for lack of evidentiary
[23]

basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio and Azcuna, JJ., concur.






NOEL BUENAVENTURA, petitioner, vs. COURT OF APPEALS and
ISABEL LUCIA SINGH BUENAVENTURA, respondents.

[G.R. No. 127449. March 31, 2005]

NOEL BUENAVENTURA, petitioner, vs. COURT OF APPEALS and

ISABEL LUCIA SINGH BUENAVENTURA, respondents.

DECISION
AZCUNA, J.:

These cases involve a petition for the declaration of nullity of marriage,

which was filed by petitioner Noel Buenaventura on July 12, 1992, on the
ground of the alleged psychological incapacity of his wife, Isabel Singh
Buenaventura, herein respondent. After respondent filed her answer, petitioner,
with leave of court, amended his petition by stating that both he and his wife
were psychologically incapacitated to comply with the essential obligations of
marriage. In response, respondent filed an amended answer denying the
allegation that she was psychologically incapacitated. [1]

On July 31, 1995, the Regional Trial Court promulgated a Decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1) Declaring and decreeing the marriage entered into between plaintiff Noel A.
Buenaventura and defendant Isabel Lucia Singh Buenaventura on July 4, 1979, null
and void ab initio;
2) Ordering the plaintiff to pay defendant moral damages in the amount of 2.5 million
pesos and exemplary damages of 1 million pesos with 6% interest from the date of
this decision plus attorneys fees of P100,000.00;
3) Ordering the plaintiff to pay the defendant expenses of litigation of P50,000.00, plus
costs;
4) Ordering the liquidation of the assets of the conjugal partnership property[,] particularly
the plaintiffs separation/retirement benefits received from the Far East Bank [and]
Trust Company[,] by ceding, giving and paying to her fifty percent (50%) of the net
amount of P3,675,335.79 or P1,837,667.89 together with 12% interest per annum
from the date of this decision and one-half (1/2) of his outstanding shares of stock
with Manila Memorial Park and Provident Group of Companies;
5) Ordering him to give a regular support in favor of his son Javy Singh Buenaventura in
the amount of P15,000.00 monthly, subject to modification as the necessity arises;
 6) Awarding the care and custody of the minor Javy Singh Buenaventura to his mother,
the herein defendant; and
7) Hereby authorizing the defendant to revert back to the use of her maiden family name
Singh.

Let copies of this decision be furnished the appropriate civil registry and registries of
properties.

SO ORDERED. [2]

Petitioner appealed the above decision to the Court of Appeals. While the
case was pending in the appellate court, respondent filed a motion to increase
the P15,000 monthly support pendente lite of their son Javy Singh
Buenaventura. Petitioner filed an opposition thereto, praying that it be denied
or that such incident be set for oral argument. [3]

On September 2, 1996, the Court of Appeals issued a Resolution increasing

the support pendente lite to P20,000. Petitioner filed a motion for
[4]

reconsideration questioning the said Resolution. [5]

On October 8, 1996, the appellate court promulgated a Decision dismissing

petitioners appeal for lack of merit and affirming in toto the trial courts
decision. Petitioner filed a motion for reconsideration which was denied. From
[6]

the abovementioned Decision, petitioner filed the instant Petition for Review
on Certiorari.
On November 13, 1996, through another Resolution, the Court of Appeals
denied petitioners motion for reconsideration of the September 2, 1996
Resolution, which increased the monthly support for the son. Petitioner filed a[7]

Petition for Certiorari to question these two Resolutions.

On July 9, 1997, the Petition for Review on Certiorari and the Petition [8]

for Certiorari were ordered consolidated by this Court.

[9] [10]

In the Petition for Review on Certiorari petitioner claims that the Court of
Appeals decided the case not in accord with law and jurisprudence, thus:

1. WHEN IT AWARDED DEFENDANT-APPELLEE MORAL DAMAGES IN THE

AMOUNT OF P2.5 MILLION AND EXEMPLARY DAMAGES OF P1 MILLION,
WITH 6% INTEREST FROM THE DATE OF ITS DECISION, WITHOUT ANY
LEGAL AND MORAL BASIS;

2. WHEN IT AWARDED P100,000.00 ATTORNEYS FEES AND P50,000.00

EXPENSES OF LITIGATION, PLUS COSTS, TO DEFENDANT-APPELLEE,
WITHOUT FACTUAL AND LEGAL BASIS;
3. WHEN IT ORDERED PLAINTIFF-APPELLANT NOEL TO PAY
DEFENDANT-APPELLEE ONE-HALF OR P1,837,667.89 OUT OF HIS
RETIREMENT BENEFITS RECEIVED FROM THE FAR EAST BANK AND
TRUST CO., WITH 12% INTEREST THEREON FROM THE DATE OF ITS
DECISION, NOTWITHSTANDING THAT SAID RETIREMENT BENEFITS ARE
GRATUITOUS AND EXCLUSIVE PROPERTY OF NOEL, AND ALSO TO
DELIVER TO DEFENDANT-APPELLEE ONE-HALF OF HIS SHARES OF
STOCK WITH THE MANILA MEMORIAL PARK AND THE PROVIDENT
GROUP OF COMPANIES, ALTHOUGH SAID SHARES OF STOCK WERE
ACQUIRED BY NOEL BEFORE HIS MARRIAGE TO RESPONDENT ISABEL
AND ARE, THEREFORE, AGAIN HIS EXCLUSIVE PROPERTIES; AND

4. WHEN IT AWARDED EXCLUSIVE CARE AND CUSTODY OVER THE

PARTIES MINOR CHILD TO DEFENDANT-APPELLEE WITHOUT ASKING
THE CHILD (WHO WAS ALREADY 13 YEARS OLD AT THAT TIME) HIS
CHOICE AS TO WHOM, BETWEEN HIS TWO PARENTS, HE WOULD LIKE TO
HAVE CUSTODY OVER HIS PERSON. [11]

In the Petition for Certiorari, petitioner advances the following contentions:

THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN IT

REFUSED TO SET RESPONDENTS MOTION FOR INCREASED SUPPORT FOR
THE PARTIES SON FOR HEARING. [12]

THERE WAS NO NEED FOR THE COURT OF APPEALS TO INCREASE JAVYS

MONTHLY SUPPORT OF P15,000.00 BEING GIVEN BY PETITIONER EVEN
AT PRESENT PRICES. [13]

IN RESOLVING RESPONDENTS MOTION FOR THE INCREASE OF JAVYS

SUPPORT, THE COURT OF APPEALS SHOULD HAVE EXAMINED THE LIST
OF EXPENSES SUBMITTED BY RESPONDENT IN THE LIGHT OF
PETITIONERS OBJECTIONS THERETO, INSTEAD OF MERELY ASSUMING
THAT JAVY IS ENTITLED TO A P5,000 INCREASE IN SUPPORT AS SAID
AMOUNT IS TOO MINIMAL. [14]

LIKEWISE, THE COURT OF APPEALS SHOULD HAVE GIVEN PETITIONER

AN OPPORTUNITY TO PROVE HIS PRESENT INCOME TO SHOW THAT HE
CANNOT AFFORD TO INCREASE JAVYS SUPPORT. [15]

With regard to the first issue in the main case, the Court of Appeals
articulated:
On Assignment of Error C, the trial court, after findings of fact ascertained from the
testimonies not only of the parties particularly the defendant-appellee but likewise,
those of the two psychologists, awarded damages on the basis of Articles 21, 2217 and
2229 of the Civil Code of the Philippines.

Thus, the lower court found that plaintiff-appellant deceived the defendant-appellee
into marrying him by professing true love instead of revealing to her that he was
under heavy parental pressure to marry and that because of pride he married
defendant-appellee; that he was not ready to enter into marriage as in fact his career
was and always would be his first priority; that he was unable to relate not only to
defendant-appellee as a husband but also to his son, Javy, as a father; that he had no
inclination to make the marriage work such that in times of trouble, he chose the
easiest way out, that of leaving defendantappellee and their son; that he had no desire
to keep defendant-appellee and their son as proved by his reluctance and later, refusal
to reconcile after their separation; that the aforementioned caused defendant-appellee
to suffer mental anguish, anxiety, besmirched reputation, sleepless nights not only in
those years the parties were together but also after and throughout their separation.

Plaintiff-appellant assails the trial courts decision on the ground that unlike those
arising from a breach in ordinary contracts, damages arising as a consequence of
marriage may not be awarded. While it is correct that there is, as yet, no decided case
by the Supreme Court where damages by reason of the performance or non-
performance of marital obligations were awarded, it does not follow that no such
award for damages may be made.

Defendant-appellee, in her amended answer, specifically prayed for moral and

exemplary damages in the total amount of 7 million pesos. The lower court, in the
exercise of its discretion, found full justification of awarding at least half of what was
originally prayed for. We find no reason to disturb the ruling of the trial court.[16]

The award by the trial court of moral damages is based on Articles 2217
and 21 of the Civil Code, which read as follows:

ART. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. Though incapable of pecuniary computation, moral damages may
be recovered if they are the proximate result of the defendants wrongful act or
omission.

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
 The trial court referred to Article 21 because Article 2219 of the Civil Code
[17]

enumerates the cases in which moral damages may be recovered and it

mentions Article 21 as one of the instances. It must be noted that Article 21
states that the individual must willfully cause loss or injury to another. There is
a need that the act is willful and hence done in complete freedom. In granting
moral damages, therefore, the trial court and the Court of Appeals could not but
have assumed that the acts on which the moral damages were based were
done willfully and freely, otherwise the grant of moral damages would have no
leg to stand on.
On the other hand, the trial court declared the marriage of the parties null
and void based on Article 36 of the Family Code, due to psychological
incapacity of the petitioner, Noel Buenaventura. Article 36 of the Family Code
states:

A marriage contracted by any party who, at the time of the celebration, was
psychologically incapacitated to comply with the essential marital obligations of
marriage, shall likewise be void even if such incapacity becomes manifest only after
its solemnization.

Psychological incapacity has been defined, thus:

. . . no less than a mental (not physical) incapacity that causes a party to be truly
incognitive of the basic marital covenants that concomitantly must be assumed
and discharged by the parties to the marriage which, as so expressed by Article 68
of the Family Code, include their mutual obligations to live together, observe love,
respect and fidelity and render help and support. There is hardly any doubt that the
intendment of the law has been to confine the meaning of "psychological incapacity"
to the most serious cases of personality disorders clearly demonstrative of an utter
insensitivity or inability to give meaning and significance to the marriage. . . .
[18]

The Court of Appeals and the trial court considered the acts of the petitioner
after the marriage as proof of his psychological incapacity, and therefore a
product of his incapacity or inability to comply with the essential obligations of
marriage. Nevertheless, said courts considered these acts as willful and hence
as grounds for granting moral damages. It is contradictory to characterize acts
as a product of psychological incapacity, and hence beyond the control of the
party because of an innate inability, while at the same time considering the
same set of acts as willful. By declaring the petitioner as psychologically
incapacitated, the possibility of awarding moral damages on the same set of
facts was negated. The award of moral damages should be predicated, not on
the mere act of entering into the marriage, but on specific evidence that it was
done deliberately and with malice by a party who had knowledge of his or her
disability and yet willfully concealed the same. No such evidence appears to
have been adduced in this case.
For the same reason, since psychological incapacity means that one is truly
incognitive of the basic marital covenants that one must assume and discharge
as a consequence of marriage, it removes the basis for the contention that the
petitioner purposely deceived the private respondent. If the private respondent
was deceived, it was not due to a willful act on the part of the petitioner.
Therefore, the award of moral damages was without basis in law and in fact.
Since the grant of moral damages was not proper, it follows that the grant
of exemplary damages cannot stand since the Civil Code provides that
exemplary damages are imposed in addition to moral, temperate, liquidated or
compensatory damages. [19]

With respect to the grant of attorneys fees and expenses of litigation the trial
court explained, thus:

Regarding Attorneys fees, Art. 2208 of the Civil Code authorizes an award of
attorneys fees and expenses of litigation, other than judicial costs, when as in this case
the plaintiffs act or omission has compelled the defendant to litigate and to incur
expenses of litigation to protect her interest (par. 2), and where the Court deems it just
and equitable that attorneys fees and expenses of litigation should be recovered. (par.
11)[20]

The Court of Appeals reasoned as follows:

On Assignment of Error D, as the award of moral and exemplary damages is fully

justified, the award of attorneys fees and costs of litigation by the trial court is
likewise fully justified.
[21]

The acts or omissions of petitioner which led the lower court to deduce his
psychological incapacity, and his act in filing the complaint for the annulment of
his marriage cannot be considered as unduly compelling the private respondent
to litigate, since both are grounded on petitioners psychological incapacity,
which as explained above is a mental incapacity causing an utter inability to
comply with the obligations of marriage. Hence, neither can be a ground for
attorneys fees and litigation expenses. Furthermore, since the award of moral
and exemplary damages is no longer justified, the award of attorneys fees and
expenses of litigation is left without basis.
 Anent the retirement benefits received from the Far East Bank and Trust
Co. and the shares of stock in the Manila Memorial Park and the Provident
Group of Companies, the trial court said:

The third issue that must be resolved by the Court is what to do with the assets of the
conjugal partnership in the event of declaration of annulment of the marriage. The
Honorable Supreme Court has held that the declaration of nullity of marriage
carries ipso facto a judgment for the liquidation of property (Domingo v. Court of
Appeals, et al., G.R. No. 104818, Sept. 17, 1993, 226 SCRA, pp. 572 573, 586). Thus,
speaking through Justice Flerida Ruth P. Romero, it was ruled in this case:

When a marriage is declared void ab initio, the law states that the final judgment
therein shall provide for the liquidation, partition and distribution of the properties of
the spouses, the custody and support of the common children and the delivery of their
presumptive legitimes, unless such matters had been adjudicated in the previous
proceedings.

The parties here were legally married on July 4, 1979, and therefore, all property
acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be
conjugal unless the contrary is proved (Art. 116, New Family Code; Art. 160, Civil
Code). Art. 117 of the Family Code enumerates what are conjugal partnership
properties. Among others they are the following:

1) Those acquired by onerous title during the marriage at the expense of the common
fund, whether the acquisition be for the partnership, or for only one of the spouses;

2) Those obtained from the labor, industry, work or profession of either or both of the
spouses;

3) The fruits, natural, industrial, or civil, due or received during the marriage from the
common property, as well as the net fruits from the exclusive property of each spouse.
...

Applying the foregoing legal provisions, and without prejudice to requiring an

inventory of what are the parties conjugal properties and what are the exclusive
properties of each spouse, it was disclosed during the proceedings in this case that the
plaintiff who worked first as Branch Manager and later as Vice-President of Far East
Bank & Trust Co. received separation/retirement package from the said bank in the
amount of P3,701,500.00 which after certain deductions amounting to P26,164.21
gave him a net amount of P3,675,335.79 and actually paid to him on January 9, 1995
(Exhs. 6, 7, 8, 9, 10, 11). Not having shown debts or obligations other than those
deducted from the said retirement/separation pay, under Art. 129 of the Family Code
The net remainder of the conjugal partnership properties shall constitute the profits,
which shall be divided equally between husband and wife, unless a different
proportion or division was agreed upon in the marriage settlement or unless there has
been a voluntary waiver or forfeiture of such share as provided in this Code. In this
particular case, however, there had been no marriage settlement between the parties,
nor had there been any voluntary waiver or valid forfeiture of the defendant wifes
share in the conjugal partnership properties. The previous cession and transfer by the
plaintiff of his one-half (1/2) share in their residential house and lot covered by T.C.T.
No. S-35680 of the Registry of Deeds of Paraaque, Metro Manila, in favor of the
defendant as stipulated in their Compromise Agreement dated July 12, 1993, and
approved by the Court in its Partial Decision dated August 6, 1993, was actually
intended to be in full settlement of any and all demands for past support. In reality, the
defendant wife had allowed some concession in favor of the plaintiff husband, for
were the law strictly to be followed, in the process of liquidation of the conjugal
assets, the conjugal dwelling and the lot on which it is situated shall, unless otherwise
agreed upon by the parties, be adjudicated to the spouse with whom their only child
has chosen to remain (Art. 129, par. 9). Here, what was done was one-half (1/2)
portion of the house was ceded to defendant so that she will not claim anymore for
past unpaid support, while the other half was transferred to their only child as his
presumptive legitime.

Consequently, nothing yet has been given to the defendant wife by way of her share in
the conjugal properties, and it is but just, lawful and fair, that she be given one-half
(1/2) share of the separation/retirement benefits received by the plaintiff the same
being part of their conjugal partnership properties having been obtained or derived
from the labor, industry, work or profession of said defendant husband in accordance
with Art. 117, par. 2 of the Family Code. For the same reason, she is entitled to one-
half (1/2) of the outstanding shares of stock of the plaintiff husband with the Manila
Memorial Park and the Provident Group of Companies. [22]

The Court of Appeals articulated on this matter as follows:

On Assignment of Error E, plaintiff-appellant assails the order of the trial court for
him to give one-half of his separation/retirement benefits from Far East Bank & Trust
Company and half of his outstanding shares in Manila Memorial Park and Provident
Group of Companies to the defendant-appellee as the latters share in the conjugal
partnership.

On August 6, 1993, the trial court rendered a Partial Decision approving the
Compromise Agreement entered into by the parties. In the same Compromise
Agreement, the parties had agreed that henceforth, their conjugal partnership is
dissolved. Thereafter, no steps were taken for the liquidation of the conjugal
partnership.

Finding that defendant-appellee is entitled to at least half of the separation/retirement

benefits which plaintiff-appellant received from Far East Bank & Trust Company
upon his retirement as Vice-President of said company for the reason that the benefits
accrued from plaintiffappellants service for the bank for a number of years, most of
which while he was married to defendant-appellee, the trial court adjudicated the
same. The same is true with the outstanding shares of plaintiff-appellant in Manila
Memorial Park and Provident Group of Companies. As these were acquired by the
plaintiff-appellant at the time he was married to defendant-appellee, the latter is
entitled to one-half thereof as her share in the conjugal partnership. We find no reason
to disturb the ruling of the trial court.
[23]

Since the present case does not involve the annulment of a bigamous
marriage, the provisions of Article 50 in relation to Articles 41, 42 and 43 of the
Family Code, providing for the dissolution of the absolute community or
conjugal partnership of gains, as the case may be, do not apply. Rather, the
general rule applies, which is that in case a marriage is declared void ab initio,
the property regime applicable and to be liquidated, partitioned and distributed
is that of equal co-ownership.
In Valdes v. Regional Trial Court, Branch 102, Quezon City, this Court [24]

expounded on the consequences of a void marriage on the property relations

of the spouses and specified the applicable provisions of law:

The trial court correctly applied the law. In a void marriage, regardless of the cause
thereof, the property relations of the parties during the period of cohabitation is
governed by the provisions of Article 147 or Article 148, such as the case may be, of
the Family Code. Article 147 is a remake of Article 144 of the Civil Code as
interpreted and so applied in previous cases; it provides:

ART. 147. When a man and a woman who are capacitated to marry each other, live
exclusively with each other as husband and wife without the benefit of marriage or
under a void marriage, their wages and salaries shall be owned by them in equal
shares and the property acquired by both of them through their work or industry shall
be governed by the rules on co-ownership.

In the absence of proof to the contrary, properties acquired while they lived together
shall be presumed to have been obtained by their joint efforts, work or industry, and
shall be owned by them in equal shares. For purposes of this Article, a party who did
not participate in the acquisition by the other party of any property shall be deemed to
have contributed jointly in the acquisition thereof if the former's efforts consisted in
the care and maintenance of the family and of the household.

Neither party can encumber or dispose by acts inter vivos of his or her share in the
property acquired during cohabitation and owned in common, without the consent of
the other, until after the termination of their cohabitation.

When only one of the parties to a void marriage is in good faith, the share of the party
in bad faith in the co-ownership shall be forfeited in favor of their common children.
In case of default of or waiver by any or all of the common children or their
descendants, each vacant share shall belong to the respective surviving descendants.
In the absence of descendants, such share shall belong to the innocent party. In all
cases, the forfeiture shall take place upon termination of the cohabitation.

This peculiar kind of co-ownership applies when a man and a woman, suffering no
legal impediment to marry each other, so exclusively live together as husband and
wife under a void marriage or without the benefit of marriage. The term "capacitated"
in the provision (in the first paragraph of the law) refers to the legal capacity of a
party to contract marriage, i.e., any "male or female of the age of eighteen years or
upwards not under any of the impediments mentioned in Articles 37 and 38" of the
Code.

Under this property regime, property acquired by both spouses through

their work and industry shall be governed by the rules on equal co-ownership. Any
property acquired during the union is prima facie presumed to have been obtained
through their joint efforts. A party who did not participate in the acquisition of the
property shall still be considered as having contributed thereto jointly if said party's
"efforts consisted in the care and maintenance of the family household." Unlike the
conjugal partnership of gains, the fruits of the couple's separate property are not
included in the co-ownership.

Article 147 of the Family Code, in substance and to the above extent, has clarified
Article 144 of the Civil Code; in addition, the law now expressly provides that

(a) Neither party can dispose or encumber by act[s] inter vivos [of] his or her share in
co-ownership property, without the consent of the other, during the period of
cohabitation; and

(b) In the case of a void marriage, any party in bad faith shall forfeit his or her share in
the co-ownership in favor of their common children; in default thereof or waiver by
any or all of the common children, each vacant share shall belong to the respective
surviving descendants, or still in default thereof, to the innocent party. The forfeiture
shall take place upon the termination of the cohabitation or declaration of nullity of
the marriage.

In deciding to take further cognizance of the issue on the settlement of the parties'
common property, the trial court acted neither imprudently nor precipitately; a court
which had jurisdiction to declare the marriage a nullity must be deemed likewise
clothed with authority to resolve incidental and consequential matters. Nor did it
commit a reversible error in ruling that petitioner and private respondent own the
"family home" and all their common property in equal shares, as well as in
concluding that, in the liquidation and partition of the property owned in common by
them, the provisions on co-ownership under the Civil Code, not Articles 50, 51 and
52, in relation to Articles 102 and 129, of the Family Code, should aptly prevail. The
rules set up to govern the liquidation of either the absolute community or the conjugal
partnership of gains, the property regimes recognized for valid and voidable marriages
(in the latter case until the contract is annulled), are irrelevant to the liquidation of the
co-ownership that exists between common-law spouses. The first paragraph of Article
50 of the Family Code, applying paragraphs (2), (3), (4) and (5) of Article 43, relates
only, by its explicit terms, to voidable marriages and, exceptionally, to void marriages
under Article 40 of the Code, i.e., the declaration of nullity of a subsequent marriage
contracted by a spouse of a prior void marriage before the latter is judicially declared
void. The latter is a special rule that somehow recognizes the philosophy and an old
doctrine that void marriages are inexistent from the very beginning and no judicial
decree is necessary to establish their nullity. In now requiring for purposes of
remarriage, the declaration of nullity by final judgment of the previously contracted
void marriage, the present law aims to do away with any continuing uncertainty on the
status of the second marriage. It is not then illogical for the provisions of Article 43, in
relation to Articles 41 and 42, of the Family Code, on the effects of the termination of
a subsequent marriage contracted during the subsistence of a previous marriage to be
made applicable pro hac vice. In all other cases, it is not to be assumed that the law
has also meant to have coincident property relations, on the one hand, between
spouses in valid and voidable marriages (before annulment) and, on the other,
between common-law spouses or spouses of void marriages, leaving to ordain, in the
latter case, the ordinary rules on co-ownership subject to the provision of Article 147
and Article 148 of the Family Code. It must be stressed, nevertheless, even as it may
merely state the obvious, that the provisions of the Family Code on the "family
home," i.e., the provisions found in Title V, Chapter 2, of the Family Code, remain in
force and effect regardless of the property regime of the spouses. [25]

Since the properties ordered to be distributed by the court a quo were found,
both by the trial court and the Court of Appeals, to have been acquired during
the union of the parties, the same would be covered by the co-ownership. No
fruits of a separate property of one of the parties appear to have been included
or involved in said distribution. The liquidation, partition and distribution of the
properties owned in common by the parties herein as ordered by the court a
quo should, therefore, be sustained, but on the basis of co-ownership and not
of the regime of conjugal partnership of gains.
As to the issue on custody of the parties over their only child, Javy Singh
Buenaventura, it is now moot since he is about to turn twenty-five years of age
on May 27, 2005 and has, therefore, attained the age of majority.
[26]

With regard to the issues on support raised in the Petition for Certiorari,
these would also now be moot, owing to the fact that the son, Javy Singh
Buenaventura, as previously stated, has attained the age of majority.
WHEREFORE, the Decision of the Court of Appeals dated October 8, 1996
and its Resolution dated December 10, 1996 which are contested in the Petition
for Review (G.R. No. 127449), are hereby MODIFIED, in that the award of moral
and exemplary damages, attorneys fees, expenses of litigation and costs are
deleted. The order giving respondent one-half of the retirement benefits of
petitioner from Far East Bank and Trust Co. and one-half of petitioners shares
of stock in Manila Memorial Park and in the Provident Group of Companies
is sustained but on the basis of the liquidation, partition and distribution
of the co-ownership and not of the regime of conjugal partnership of
gains. The rest of said Decision and Resolution are AFFIRMED.
The Petition for Review on Certiorari (G.R. No. 127358) contesting the Court
of Appeals Resolutions of September 2, 1996 and November 13, 1996 which
increased the support pendente lite in favor of the parties son, Javy Singh
Buenaventura, is now MOOT and ACADEMIC and is, accordingly, DISMISSED.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Carpio,
JJ., concur.