OBLICON Chapter 4 Cases (Pages)

(1) (MIAA v. Ding Velayo Sports Center, Inc., G.R. No. 161718, December 14, 2011)
(9) (Cecilleville Realty and Service Corp. v. Spouses Acua, G.R. No. 162074, July 13, 2009)
(12) (Republic v. De Guzman, G.R. No. 175021, June 15, 2011)
(18) (Monte de Piedad v. Rodrigo, G.R. No. 42928, August 18, 1936)
(22)(Spouses Cinco v. Court of Appeals, G.R. No. 151903, October 09, 2009)
(26) (PNCC v. Court of Appeals, G.R. No. 116896, May 05, 1997)
(30) (Naga Telephone Co., Inc. v. Court of Appeals, G.R. No. 107112, February 24, 1994)

(MIAA v. Ding Velayo Sports Center, Inc., comfort, convenience and relaxation of
G.R. No. 161718, December 14, 2011 transients, tourists and the general public;

FIRST DIVISION WHEREAS, the LESSEE, a corporation engaged in

[G.R. No. 161718. December 14, 2011.]
MANILA INTERNATIONAL AIRPORT AUTHORITY,
petitioner, vs. DING VELAYO SPORTS CENTER,
INC., respondent.
hostelry and other allied business, is ready,
willing and able to cooperate with the LESSOR in
the implementation of this general development
plan for the airport premises;
xxx xxx xxx

DECISION WHEREAS, the LESSEE's main interest is to have

LEONARDO-DE CASTRO, J p:
Before Us is a Petition for Review under Rule 45 of
the Rules of Court of the Decision 1 dated January
8, 2004 of the Court Appeals in CA-G.R. CV No.
68787, affirming the Decision 2 dated October
29, 1999 of Branch 111 of the Regional Trial Court
(RTC) of Pasay City in Civil Case No. 8847, which
granted the Complaint for Injunction,
Consignation, and Damages with prayer for a
Temporary Restraining Order filed by respondent
Ding Velayo Sports Center, Inc. against petitioner
Manila International Airport Authority (MIAA), and
essentially compelled petitioner to renew the
lease of respondent over a parcel of land within
the airport premises.
Below are the facts as culled from the records of
the case:
On February 15, 1967, petitioner (then still called
the Civil Aeronautics Administration or CAA) and
Salem Investment Corporation (Salem) entered
into a Contract of Lease whereby petitioner
leased in favor of Salem a parcel of land known
as Lot 2-A, with an area of 76,328 square meters,
located in front of the Manila International Airport
(MIA) in Pasay City, and registered under Transfer
Certificate of Title (TCT) No. 6735 in the name of
the Republic (Lot 2-A). Petitioner and Salem
entered into said Contract of Lease for the
following reasons:
WHEREAS, this particular portion of land is
presently an eyesore to the airport premises due
to the fact that a major portion of it consists of
swampy and talahib infested silt and abandoned
fishponds and occupied by squatters and some
[petitioner's] employees with ungainly makeshift
dwellings;
WHEREAS, the LESSOR, in accordance with its
general plan to improve and beautify the airport
premises, is interested in developing this
particular area by providing such facilities and
conveniences as may be necessary for the
1|OBLICON_Chaper4cases
a sufficient land area within which to construct a
modern hotel with such facilities as would
ordinarily go with modern hostelry, including
recreation halls, facilities for banks, tourist
agencies, travel bureaus, laundry shops, postal
stations, curio and native shops and other allied
business calculated to make the hotel and its
facilities comfortable, convenient and attractive,
and for this purpose, an initial land area of some
Thirty[-]Five Thousand Ten (35,010) square
meters would be first utilized. 3
The term of the lease and renewal thereof as
stipulated upon by petitioner and Salem are as
follows: TIEHSA
3.That the term of the lease shall be for a period
of Twenty-Five (25) years, commencing from the
date of receipt of approval of this Contract by the
Secretary of Public Works and Communications,
and at the option of the LESSEE, renewable for
another Twenty-Five (25) years. It is understood,
that after the first 25 years lease, the ownership
of, and full title to, all the buildings and
permanent improvements introduced by the
LESSEE on the leased premises including those
introduced on the Golf Driving Range shall
automatically vest in the LESSOR, without cost.
Upon the termination of the lease or should the
LESSEE not exercise this option for renewal, the
LESSEE shall deliver the peaceful possession of
all the building and other permanent
improvements herein above referred to, with the
understanding that the LESSEE shall have the
right to remove from the premises such
equipment, furnitures, accessories and other
articles as would ordinarily be classified as
movable property under pertinent provisions of
law.
4.That the renewal of this lease contract shall be
for another period of Twenty-Five (25) years,
under the same terms and conditions herein
stipulated; provided, however that, since the
ownership of the hotel building and permanent
improvement have passed on the LESSOR, the
LESSEE shall pay as rental, in addition to the
rentals herein agreed upon, an amount
equivalent to One percent (1%) of the appraised
value of the hotel building and permanent
improvements at the time of expiration of Twenty-
Five (25) years lease period, payable annually. 4
Subsequently, in a Transfer of Lease Rights and
Existing Improvements dated September 30,
1974, Salem conveyed in favor of Ding Velayo
Export Corporation (Velayo Export), for the
consideration of P1,050,000.00, its leasehold
rights over a portion of Lot 2-A, measuring about
15,534 square meters, with the improvements
thereon, consisting of an unfinished cinema-
theater. Accordingly, petitioner and Velayo Export
executed a Contract of Lease dated November
26, 1974 pertaining to the aforementioned leased
portion of Lot 2-A.
In turn, Velayo Export executed a Transfer of
Lease Rights dated April 27, 1976 by which it
conveyed to respondent, for the consideration of
P500,000.00, its leasehold rights over an 8,481-
square meter area (subject property) out of the
15,534-square meter portion it was leasing from
petitioner. As a result, petitioner and respondent
executed another Contract of Lease 5 dated May
14, 1976 covering the subject property.
The Contract of Lease dated May 14, 1976
between petitioner (as lessor) and respondent (as
lessee) specified how respondent shall develop
and use the subject property:
2.That the LESSEE shall utilize the premises as
the site for the construction of a Sports Complex
facilities and shopping centers in line with the
Presidential Decree for Sports Development and
Physical Fitness, including the beautification of
the premises and providing cemented parking
areas.
3.That the LESSEE shall construct at its expense
on the leased premises a parking area parallel to
and fronting the Domestic Airport Terminal to be
open to the traveling public free of charge to ease
the problem of parking congestion at the
Domestic Airport. 6
Pursuant to the aforequoted objectives,
respondent agreed to the following:
9.Physical improvements on building spaces and
areas subject of this agreement may be
undertaken by and at the expenses of the
LESSEE. However, no improvements may be
commenced without prior approval of the plans
by the LESSOR and, whenever deemed necessary
a cash deposit shall be made in favor of the
LESSOR which shall be equivalent to the cost of
restoration of any portion affected by such
alteration or improvements;
10.The LESSEE agrees and binds himself to
complete the physical improvements or
contemplated structures within the leased
premises for a period of one (1) year. Failure on
the part of the LESSEE to do so within said period
shall automatically revoke the Contract of Lease
without necessity of judicial process. 7
2|OBLICON_Chaper4cases
The lease rental shall be computed as follows:
cHCIEA
5.That the LESSEE shall pay to the LESSOR as
monthly rentals for the leased premises the rate
of P0.45 per square meter for the first 300 square
meters, P0.30 per square meter for the next 500
square meters, and P0.25 per square meter for
the remaining area pursuant to Part VIII, Section 4
of Administrative Order No. 4, Series of 1970,
which in the case of the 8,481 square meters
herein leased shall amount to P2,205.25 per
month, or a royalty equivalent to one percent
(1%) of the monthly gross income of the LESSEE,
whichever is higher.
6.That for the purpose of accurately determining
the monthly gross income, the LESSEE hereby
gives its consent for the examination of the books
by authorized representatives of the LESSOR or
the Commission on Audit;
xxx xxx xxx
13.If, during the lifetime of this agreement and
upon approval by the LESSOR, the leased area is
increased or diminished, or the LESSEE is
relocated to another area, rentals, fees, and
charges imposed shall be amended accordingly.
Subsequent amendments to the Administrative
Order which will affect an increase of the rates of
fees, charges and rentals agreed upon in this
contract shall automatically amend this contract
to the extent that the rates of fees, rentals, and
charges are increased.
In the event of relocation of the LESSEE to other
areas, the cost of relocation shall be shouldered
by the LESSEE. 8
Nonpayment of lease rentals shall have the
following consequence:
8.Failure on the part of the LESSEE TO PAY ANY
fees, charges, rentals or the royalty of one
percent (1%) within thirty (30) days after receipt
of written demand, the LESSOR shall deny the
LESSEE of the further use of the leased premises
and/or any of its facilities, utilities and services. . .
..9
The Contract of Lease prohibits respondent from
transferring its leasehold rights, engaging in any
other business outside those mentioned in said
Contract, and subletting the premises whether in
whole or in part, thus:
16.The LESSEE agrees not to assign, sell, transfer
or mortgage his rights under this agreement or
sublet the whole or part of premises covered by it
to a third party or parties nor engage in any other
business outside of those mentioned in this
contract. Violation of this provision shall also be a
ground for revocation of the lease contract
without need of judicial process. 10
Period of the lease and renewal thereof are
governed by paragraphs 4 and 17 of the Contract
of Lease that read:

4.That the period of this lease shall take effect
from June 1, 1976 up to February 15, 1992 which
is equivalent to the unexpired portion of the lease
contract executed between [petitioner] and Ding
Velayo Export Corporation.
xxx xxx xxx
17.The LESSEE, if desirous of continuing his lease,
should notify the LESSOR sixty (60) days prior to
expiration of the period agreed upon for the
renewal of the Contract of Lease. 11
The lease may be revoked/terminated under the
following conditions:
15.This contract of lease may be terminated by
other party upon thirty (30) days notice in
writing. Failure on the part of the LESSEE to
comply with any of the provisions of this lease
contract or any violation of any rule or
regulations of the Airport shall give the LESSOR
the right to revoke this contract effective thirty
(30) days after notice of revocation without need
of judicial demand. However, the LESSEE shall
remain liable and obligated to pay rentals and
other fees and charges due and in arrears with
interest at the rate of twelve percent (12%) per
annum;
xxx xxx xxx
18.Upon termination or revocation of this contract
of lease as herein provided, the LESSEE shall
deliver possession of the premises to the LESSOR
in the same condition that they were received
giving allowance to normal wear and tear and to
damage or destruction caused by act of God. All
permanent improvements, however, which the
LESSEE might have constructed in the premises
by virtue hereof shall upon the termination of this
lease automatically become the absolute
property of the LESSOR without cost; DSacAE
19.In the event that the LESSOR shall need the
leased premises in its airport development
program, the LESSEE agrees to vacate the
premises within thirty (30) days from receipt of
notice. All improvements not removed by the
LESSEE within the thirty (30) day period shall
become the property of the LESSOR without cost.
12
Respondent began occupying the subject
property and paying petitioner the amount of
P2,205.25 per month as rental fee. Respondent
then constructed a multi-million plaza with a
three-storey building on said property.
Respondent leased spaces in the building to
various business proprietors.
In a Letter 13 dated April 11, 1979, petitioner
requested respondent for a copy of the latter's
Gross Income Statement from December 1977 to
December 1978, duly certified by a certified
public accountant, for the purpose of computing
the royalty equivalent to 1% of the monthly gross
income of respondent. Acceding to this request,
3|OBLICON_Chaper4cases
respondent sent petitioner a Letter 14 dated May
31, 1979 and appended therewith the requested
income statements which disclosed that the total
gross income of respondent for the period in
question amounted to P1,972,968.11.
Respondent also submitted to petitioner and the
Commission on Audit (COA) its duly audited
financial statements 15 for the years 1984 to
1988. Meanwhile, petitioner had continued billing
respondent the amount of P2,205.25 as monthly
rental fee, which the latter obediently paid.
Petitioner eventually issued Administrative Order
(AO) No. 4, series of 1982, 16 and AO No. 1,
series of 1984, fixing various rates for the lease
rentals of its properties. AO No. 4, series of 1982,
and AO No. 1, series of 1984, allegedly effected
an increase in the lease rental of respondent for
the subject property, as provided for in paragraph
13 of the Contract of Lease dated May 14, 1976
between petitioner and respondent. However,
said issuances were subjected to review for
revision purposes and their implementation was
suspended. Still, petitioner, through a letter dated
September 23, 1986, required respondent to pay
a moratorium rental at the rate of P5.00 per
square meter rate per month or a total of
P42,405.00 every month.
In a Letter 17 dated October 18, 1986,
respondent opposed the implementation of any
increase in its lease rental for the subject
property. Respondent wrote:
We believe that an increase in rental of a
property which does not form part of the Airport
or its immediate premises, like the premises
leased to DVSC, although owned by MIAA is not
covered by Batas Pambansa Blg. 325 or Finance
Ministry Order No. 6-83. Furthermore, the
language of B.P. No. 325 and Ministry Order No. 6-
83 authorizes the fixing or revision of fees and
charges only for "services and functions."
xxx xxx xxx
Assuming that the increase in rental of MIAA
property is authorized by B.P. No. 325 and
Ministry Order No. 6-83, such increase as ordered
in your moratorium rental rate insofar as it is
made applicable to DVSC is not valid.
The increase which is around 2,000 percent or 20
times above present rental rate is unreasonably
high. Both B.P. No. 325 and Ministry Order No. 6-
83 prescribed only "just and reasonable rates
sufficient to cover administrative costs."
Such increase in rental is uncalled for considering
that:
Upon termination of the lease, all the
improvements on the property shall belong to
MIAA without costs. The original cost of the
buildings and other improvements on the land we
have leased is P10,600,000.00. Said
improvements would now cost over
P30,000,000.00. In effect the Government would
be collecting another P2.0 million a year.

We, therefore, request that the moratorium rate
be not applied to us.
Following the foregoing exchange, petitioner had
kept on charging respondent the original monthly
rental of P2,205.25.
More than 60 days prior to the expiration of the
lease between petitioner and respondent, the
latter, through its President, Conrado M. Velayo
(Velayo), sent the former a Letter 18 dated
December 2, 1991 stating that respondent was
interested in renewing the lease for another 25
years.
Petitioner, through its General Manager, Eduardo
O. Carrascoso, in a Letter 19 dated February 24,
1992, declined to renew the lease, ordered
respondent to vacate the subject property within
five days, and demanded respondent to pay
arrears in lease rentals as of January 1992 in the
sum of P15,671,173.75. DaHISE
Velayo, on behalf of respondent, replied to
petitioner through a Letter 20 dated March 3,
1992 that reads:
This refers to your letters which we received on
26 February 1992 and 27 February 1992,
respectively, the first as a response to our letter
of 2 December 1991 where we informed you of
our intention to renew our lease contract, and the
second wherein you asked us to vacate within
five (5) days the leased premises.
Your second letter surprised us inasmuch as we
have been negotiating with you for the renewal of
our lease. In addition, your sudden decision gave
us no time to discuss your terms and conditions
with our Board considering that the issues
involved major decision.
For a smoother transition and for the mutual
interest of the government, the tenants and
ourselves, may we request for a reconsideration
of your decision, and we be given up to the end
of March 1992 to peacefully turn-over to you the
leased premises. This will enable you to create a
committee that will take-over the leased property
and its operations.
Likewise, consistent with our previous stand as
communicated to you by our legal counsel, copy
of which is hereto attached, we deny any liability
on rental increases.
In Letters 21 all dated March 10, 1992, Velayo
informed petitioner that he already sent
individual letters to Manila Electric Company,
Philippine Long Distance Telephone Company,
and Manila Waterworks and Sewerage System,
instructing the said utility companies that
succeeding billings for electric, telephone, and
water consumptions should already be
transferred to the account of petitioner in light of
the expected turn-over of the subject property
and improvements thereon from respondent to
petitioner.
4|OBLICON_Chaper4cases
However, around the same time, Samuel
Alomesen (Alomesen) became the new President
and General Manager of respondent, replacing
Velayo. Alomesen, acting on behalf of
respondent, sent petitioner a Letter 22 dated
March 25, 1992, revoking the aforementioned
Letters dated March 3 and 10, 1992 since these
were purportedly sent by Velayo without
authority from respondent's Board of Directors.
Respondent expressed its interest in continuing
the lease of the subject property for another 25
years and tendered to petitioner a manager's
check in the amount of P8,821.00 as payment for
the lease rentals for the subject property from
December 1991 until March 1992.
Petitioner entirely disregarded the claims of
respondent and threatened to take-over the
subject property.
On March 30, 1992, respondent filed against
petitioner before the RTC a Complaint for
Injunction, Consignation, and Damages with a
Prayer for a Temporary Restraining Order. 23
Respondent essentially prayed for the RTC to
order the renewal of the Contract of Lease
between the parties for another 25-year term
counted from February 15, 1992. On even date,
the RTC issued a Temporary Restraining Order 24
preventing petitioner and all persons acting on its
behalf from taking possession of the entire or any
portion of the subject property, from
administering the said property, from collecting
rental payments from sub-lessees, and from
taking any action against respondent for the
collection of alleged arrears in rental payments
until further orders from the trial court.
In its Answer, 25 petitioner contended that its
Contract of Lease with respondent was already
terminated on February 15, 1992, the expiration
date explicitly stated under paragraph 4 of the
same Contract. Petitioner was not bound to renew
the Contract of Lease with respondent. The
renewal provision under paragraph 17 of the
Contract was not automatic but merely directory
and procedural and that, in any event, Velayo,
the former President of respondent, already
conceded to the non-renewal of the Contract.
Petitioner likewise invoked paragraph 15 of the
Contract of Lease, i.e., its right to revoke the said
Contract in case of violation of any of the
provisions thereof by respondent. Petitioner
averred that respondent committed the following
violations: (1) respondent failed to fulfill the
conditions set forth under paragraphs 2 and 3 of
the Contract as it did not establish a shopping
center on the subject property and did not help
ease the problems of parking congestion at the
Domestic Airport; (2) respondent "sub-leased" the
subject property in defiance of the prohibition
under paragraph 16 of the Contract; and (3)
respondent did not pay the lease rentals in
accordance with paragraphs 5 and 13 of the
Contract, thus, incurring a total outstanding
balance of P15,671,173.75 as of February 1992.
By way of counter-claim, petitioner demanded
that respondent pay the total outstanding
balance of its lease rentals for the subject
property and turn-over lease rentals it had
collected from sub-lessees beginning February
15, 1992. HCSEIT
After the preliminary hearing, the RTC issued a
Writ of Preliminary Injunction 26 against
petitioner on April 30, 1992 upon the posting by
respondent of a bond in the amount of
P100,000.00.
In an Order 27 dated June 11, 1996, the RTC
denied the Omnibus Motion of petitioner for the
dissolution of the writ of injunction and
appointment of a receiver for the fruits of the
subject property; and at the same time, granted
the motion of respondent for the consignment of
their monthly lease rentals for the subject
property with the RTC.
The RTC terminated the pre-trial proceedings in
an Order 28 dated October 23, 1997 for failure of
the parties to amicably settle the dispute.
Thereafter, trial on the merits ensued.
Respondent presented the testimonies of Mariano
Nocom, Jr., 29 Gladioluz Segundo, 30 Mariano
Nocom, Sr., 31 and Rosila Mabanag. 32 The RTC
admitted all the documentary evidence of
respondent in an Order 33 dated December 14,
1998.
Petitioner, on the other hand, presented the lone
testimony of their accounting manager, Arlene
Britanico. 34 Among the numerous documents
submitted by petitioner as evidence were its own
issuances imposing various rates for the lease of
its properties, which allegedly effected an
increase in the lease rentals of respondent for the
subject property, specifically, AO No. 4, series of
1982; 35 AO No. 1, series of 1984; 36 AO No. 1,
series of 1990; 37 AO No. 1, series of 1993; 38
Resolution No. 94-74, 39 Resolution No. 96-32, 40
and Resolution No. 97-51, 41 all amending AO No.
1, series of 1993; and AO No. 1, series of 1998.
42 All of the documentary evidence of petitioner
were admitted by the RTC in an Order 43 dated
May 28, 1999.
In its Decision dated October 29, 1999, the RTC
ruled in favor of respondent, disposing thus:
WHEREFORE, judgment is hereby rendered in
favor of [respondent] and against [petitioner].
EHSADc
Accordingly, [petitioner] is hereby ordered to:
1.Grant renewal of the lease contract for the
same term as stipulated in the old contract and
the rental to be based on the applicable rate of
the time or renewal;
2.To respect and maintain [respondent's] peaceful
possession of the premises;
5|OBLICON_Chaper4cases
3.To accept the rental payment consigned by the
[respondent] to the court beginning December
1991 onward until and after a renewal has been
duly executed by both parties;
4.To pay [respondent] as and by way of attorney's
fees the sum of P500,000.00; and
5.To pay the cost of suit. 44
Petitioner appealed the RTC judgment before the
Court of Appeals and assigned these errors:
I.The trial court gravely erred in declaring that
[respondent] is entitled to a renewal of the
contract of lease.
II.The trial court gravely erred in ordering the
renewal of the contract of lease despite of the
fact that it has no legal authority to do so.
III.The trial court gravely erred in declaring that
[respondent] did not violate the terms and
conditions of the contract.
IV.The trial court gravely erred in declaring that
[petitioner's] act of effecting the increase in the
rental during the stipulated lifetime of the
contract has no valid basis.
V.The trial court gravely erred in not finding that
[petitioner] is entitled to its counterclaim. 45
The Court of Appeals promulgated its Decision on
January 8, 2004, finding no reversible error in the
appealed judgment of the RTC and decreeing as
follows:
WHEREFORE, finding no reversible error
committed by the trial court, the instant appeal is
hereby DISMISSED, and the assailed decision is
hereby AFFIRMED. 46
Hence, the instant Petition for Review, wherein
petitioner basically attributed to the Court of
Appeals the very same errors it assigned to the
RTC.
Petitioner argues that the renewal of the Contract
of Lease cannot be made to depend on the sole
will of respondent for the same would then be
void for being a potestative condition.
We do not agree. As we have already explained in
Allied Banking Corporation v. Court of Appeals: 47
Article 1308 of the Civil Code expresses what is
known in law as the principle of mutuality of
contracts. It provides that "the contract must bind
both the contracting parties; its validity or
compliance cannot be left to the will of one of
them." This binding effect of a contract on both
parties is based on the principle that the
obligations arising from contracts have the force
of law between the contracting parties, and there
must be mutuality between them based
essentially on their equality under which it is
repugnant to have one party bound by the
contract while leaving the other free therefrom.
The ultimate purpose is to render void a contract
containing a condition which makes its fulfillment
dependent solely upon the uncontrolled will of
one of the contracting parties.
An express agreement which gives the lessee the
sole option to renew the lease is frequent and
subject to statutory restrictions, valid and binding
on the parties. This option, which is provided in
the same lease agreement, is fundamentally part
of the consideration in the contract and is no
different from any other provision of the lease
carrying an undertaking on the part of the lessor
to act conditioned on the performance by the
lessee. It is a purely executory contract and at
most confers a right to obtain a renewal if there is
compliance with the conditions on which the right
is made to depend. The right of renewal
constitutes a part of the lessee's interest in the
land and forms a substantial and integral part of
the agreement. cCESaH
The fact that such option is binding only on the
lessor and can be exercised only by the lessee
does not render it void for lack of mutuality. After
all, the lessor is free to give or not to give the
option to the lessee. And while the lessee has a
right to elect whether to continue with the lease
or not, once he exercises his option to continue
and the lessor accepts, both parties are
thereafter bound by the new lease agreement.
Their rights and obligations become mutually
fixed, and the lessee is entitled to retain
possession of the property for the duration of the
new lease, and the lessor may hold him liable for
the rent therefor. The lessee cannot thereafter
escape liability even if he should subsequently
decide to abandon the premises. Mutuality
obtains in such a contract and equality exists
between the lessor and the lessee since they
remain with the same faculties in respect to
fulfillment. 48
Paragraph 17 of the Contract of Lease dated May
14, 1976 between petitioner and respondent
solely granted to respondent the option of
renewing the lease of the subject property, the
only express requirement was for respondent to
notify petitioner of its decision to renew the lease
within 60 days prior to the expiration of the
original lease term. It has not been disputed that
said Contract of Lease was willingly and
knowingly entered into by petitioner and
respondent. Thus, petitioner freely consented to
giving respondent the exclusive right to choose
whether or not to renew the lease. As we stated
in Allied Banking, the right of renewal constitutes
a part of the interest of respondent, as lessee, in
the subject property, and forms a substantial and
integral part of the lease agreement with
petitioner. Records show that respondent had
duly complied with the only condition for renewal
under Section 17 of the Contract of Lease by
notifying petitioner 60 days prior to the expiration
of said Contract that it chooses to renew the
lease. We cannot now allow petitioner to
arbitrarily deny respondent of said right after
having previously agreed to the grant of the
same.
6|OBLICON_Chaper4cases
Equally unmeritorious is the assertion of
petitioner that paragraph 17 of the Contract of
Lease dated May 14, 1976 merely provides a
procedural basis for a negotiation for renewal of
the lease and the terms thereof. The exercise by
respondent of its option to renew the lease need
no longer be subject to negotiations. We reiterate
the point we made in Allied Banking that:
[I]f we were to adopt the contrary theory that the
terms and conditions to be embodied in the
renewed contract were still subject to mutual
agreement by and between the parties, then the
option which is an integral part of the
consideration for the contract would be
rendered worthless. For then, the lessor could
easily defeat the lessee's right of renewal by
simply imposing unreasonable and onerous
conditions to prevent the parties from reaching
an agreement, as in the case at bar. As in a
statute, no word, clause, sentence, provision or
part of a contract shall be considered surplusage
or superfluous, meaningless, void, insignificant or
nugatory, if that can be reasonably avoided. To
this end, a construction which will render every
word operative is to be preferred over that which
would make some words idle and nugatory. 49
In case the lessee chooses to renew the lease but
there are no specified terms and conditions for
the new contract of lease, the same terms and
conditions as the original contract of lease shall
continue to govern, as the following survey of
cases in Allied Banking would show:
In Ledesma v. Javellana this Court was confronted
with a similar problem. In that case the lessee
was given the sole option to renew the lease, but
the contract failed to specify the terms and
conditions that would govern the new contract.
When the lease expired, the lessee demanded an
extension under the same terms and conditions.
The lessor expressed conformity to the renewal of
the contract but refused to accede to the claim of
the lessee that the renewal should be under the
same terms and conditions as the original
contract. In sustaining the lessee, this Court
made the following pronouncement:
. . . [i]n the case of Hicks v. Manila Hotel
Company, a similar issue was resolved by this
Court. It was held that 'such a clause relates to
the very contract in which it is placed, and does
not permit the defendant upon the renewal of the
contract in which the clause is found, to insist
upon different terms than those embraced in the
contract to be renewed'; and that 'a stipulation to
renew always relates to the contract in which it is
found and the rights granted thereunder, unless it
expressly provides for variations in the terms of
the contract to be renewed.' cAaDHT
The same principle is upheld in American Law
regarding the renewal of lease contracts. In 50
Am. Jur. 2d, Sec. 1159, at p. 45, we find the
following citations: 'The rule is well-established
that a general covenant to renew or extend a
lease which makes no provision as to the terms of
a renewal or extension implies a renewal or
extension upon the same terms as provided in
the original lease.'
In the lease contract under consideration, there is
no provision to indicate that the renewal will be
subject to new terms and conditions that the
parties may yet agree upon. It is to renewal
provisions of lease contracts of the kind presently
considered that the principles stated above
squarely apply. We do not agree with the
contention of the appellants that if it was
intended by the parties to renew the contract
under the same terms and conditions stipulated
in the contract of lease, such should have
expressly so stated in the contract itself. The
same argument could easily be interposed by the
appellee who could likewise contend that if the
intention was to renew the contract of lease
under such new terms and conditions that the
parties may agree upon, the contract should have
so specified. Between the two assertions, there is
more logic in the latter.
The settled rule is that in case of uncertainty as
to the meaning of a provision granting extension
to a contract of lease, the tenant is the one
favored and not the landlord. 'As a general rule,
in construing provisions relating to renewals or
extensions, where there is any uncertainty, the
tenant is favored, and not the landlord, because
the latter, having the power of stipulating in his
own favor, has neglected to do so; and also upon
the principle that every man's grant is to be
taken most strongly against himself (50 Am Jur.
2d, Sec. 1162, p. 48; see also 51 C.J.S. 599).' 50
(Emphases supplied.)
Being consistent with the foregoing principles, we
sustain the interpretation of the RTC of paragraph
17 of the Contract of Lease dated May 14, 1976
between petitioner and respondent, to wit:
[Paragraph 17 of the Contract of Lease dated May
14, 1976] admits several meanings. In simpler
terms, the phrase, i.e., "if desirous of continuing
his lease, may be simply restated, i.e., if he wants
to go on with his lease, considering the word
'CONTINUE' in its verb form ordinarily means to
go on in present state, or even restated in
another way if desirous of extending his lease,
because the word 'continue' in its verb form also
means extend uniformly." Thus, if we are to
adopt the interpretation of [petitioner] that the
stipulation merely established the procedural
basis for a negotiation for renewal then the
aforequoted phrase would be rendered a mere
surplusage, meaningless and insignificant. But if
we are to prod deeper to the very context of the
entire stipulations setforth in the contract and
from what is obvious with respect to the
intentions of the contracting parties based on
their contemporaneous and subsequent acts
including but not limited to the historical
antecedents of the agreement then an
interpretation invariably different from that of
[petitioner] becomes inevitable.
7|OBLICON_Chaper4cases
Specifically, the extraneous source of the lease
contract in question could be the original and
renewed contract of lease by and between Salem
Investment Corporation and CAA the
predecessor-in-interest of [petitioner] executed
on February 10, 1967 (Exh. "M"). Under the said
lease contract between CAA and Salem, the term
is for a period of twenty-five (25) years renewable
for another 25 years at the option of the lessee
Salem (Exh. "Y-1"). Later, with the approval of
CAA, Salem transferred its leasehold rights over a
portion of the land leased to Ding Velayo Export
Corporation on September 30, 1974 (Exh. "N")
and in turn Velayo Export transferred its
leasehold rights over a portion of the leased land
transferred to it by Salem to Velayo Sports
Complex, Inc. [respondent] herein on April
29, 1976 (Exh. "O"). Thus, on May 14, 1976,
[respondent] and CAA, predecessor-in-interest of
[petitioner], concluded the lease agreement in
question with a term equivalent to the unexpired
portion of the lease between Velayo Export and
CAA. ITECSH
As culled from the transfers effected prior to the
May 14, 1976 agreement of [respondent] and
[petitioner]'s predecessor-in-interest, the renewal
of the contract was clearly at the option of the
lessee. Considering that there was no evidence
positively showing that [respondent] and CAA
expressly intended the removal of the option for
the renewal of the lease contract from the lessee,
it is but logical to conclude, although the
stipulation setforth in paragraph 17 appears to
have been worded or couched in somewhat
uncertain terms, that the parties agreed that the
option should remain with the lessee. This must
be so because based on the context of their
agreements and bolstered by the testimony of Mr.
Mariano Nocom of Salem Investment and
particularly Rosila Mabanag, one of the signatory
witness to the contract and a retired employee of
CAA's Legal Division the parties really intended a
renewal for the same term as it was then the
usual practice of CAA to have the term of leases
on lands where substantial amount will be
involved in the construction of the improvements
to be undertaken by the lessee to give a renewal.
In fact, it clearly appears that the right of renewal
constitutes a part of the lessee's interest in the
land considering the multimillion investments it
made relative to the construction of the building
and facilities thereon and forms a substantial and
integral part of the agreement. 51 (Emphases
supplied.)
In sum, the renewed contract of lease of the
subject property between petitioner and
respondent shall be based on the same terms and
conditions as the original contract of lease. The
"original contract of lease" does not pertain to the
Contract of Lease dated May 14, 1976 between
petitioner and respondent alone, but also to the
Contract of Lease dated February 15, 1967
between petitioner (then still called CAA) and
Salem, as well as the Contract of Lease dated
November 26, 1974 between petitioner and
Velayo Export all three contracts being
inextricably connected. Since the Contract of
Lease between petitioner and Salem was for a
term of 25 years, then the renewed contract of
lease of between petitioner and respondent shall
be for another term of 25 years. This construction
of the renewal clause under paragraph 17 of the
Contract of Lease dated May 14, 1976 between
petitioner and respondent is most consistent with
the intent of the parties at the time of the
execution of said Contract and most effectual in
implementing the same.
In addition to challenging the exclusive right of
respondent to renew the Contract of Lease over
the subject property, petitioner insists on its right
to refuse the renewal because of purported
violations of the said Contract by respondent,
particularly: (1) subleasing of the premises; (2)
failure to ease the problems of parking
congestion at the Domestic Airport and to provide
a shopping center and sports facilities, such as an
oval track and a swimming pool; and (3) failure to
pay monthly lease rentals in the form of royalties
equivalent to 1% of the gross income of
respondent or in accordance with the rates fixed
in the administrative orders of petitioner.
We find no violations by the respondent of the
Contract of Lease dated May 14, 1976 as to
justify the revocation or refusal to renew of said
Contract by petitioner.
The RTC is once again correct in its construal that
paragraph 16 of the Contract of Lease, prohibiting
the subleasing of the "premises," refers only to
the subject property. We stress that when the said
Contract was executed on May 14, 1976, the
"premises" leased by petitioner to respondent,
and which respondent was not allowed to
sublease, is the subject property, i.e., an idle
piece of land with an area of 8,481 square
meters. More importantly, being the builder of
the improvements on the subject property, said
improvements are owned by respondent until
their turn-over to petitioner at the end of the 25-
year lease in 1992. As respondent is not leasing
the improvements from petitioner, then it is not
subleasing the same to third parties.
While the Contract of Lease expressly obligated
respondent to build certain improvements, such
as parking, shopping mall, and sports facilities,
the belated insistence by petitioner on
compliance with the same appears to be a mere
afterthought.
Article 1235 of the Civil Code states that "[w]hen
the obligee accepts the performance, knowing its
incompleteness or irregularity, and without
expressing any protest or objection, the
obligation is deemed fully complied with." EHCcIT
As aptly observed by the RTC, paragraphs 9 and
10 of the Contract of Lease likewise expressly
require respondent to submit, for prior approval
by petitioner, all construction plans on the
subject property; and to complete the
contemplated improvements thereon within a
year. The Contract of Lease was executed on May
14, 1976, and the one-year period expired on May
8|OBLICON_Chaper4cases
14, 1977. Yet, petitioner did not register any
protest or objection to the alleged
incompleteness of or irregularity in the
performance by respondent of its obligation to
build and develop improvements on the subject
property. In fact, upon the expiration of the
original 25-year lease period in February 1992,
petitioner was already ready and willing to accept
and appropriate as its own the improvements
built on the subject property in 1992. Petitioner
only raised the issue of the purported
incompleteness/irregularity of the said
improvements when it was brought to court by
respondent for refusing to renew the lease.
Just as the RTC adjudged, no fault could be
attributed to respondent for deficient payment of
lease rentals. Lease rentals were based on either
the rates fixed by AO No. 4, series of 1970, or 1%
of the monthly gross income of respondent,
whichever is higher. At the very beginning of the
lease, respondent had been paying monthly lease
rentals based on the rates fixed by AO No. 4,
series of 1970, which amounted to P2,205.25 per
month. When requested, respondent submitted to
petitioner its gross income statements, so
petitioner could very well compute the 1%
royalty. However, petitioner continued to charge
respondent only P2,205.25 monthly lease rental,
which the latter faithfully paid.
Petitioner later demanded an increase in lease
rentals based on subsequent administrative
issuances raising the rates for the rental of its
properties. But the RTC found that the adverted
administrative orders were not published in full,
thus, the same were legally invalid within the
context of Article 2 of the Civil Code which
provides that "[l]aws shall take effect after fifteen
days following the completion of their publication
in the Official Gazette, unless it is otherwise
provided. . . ." In Taada v. Tuvera, 52 we
enunciated that publication is indispensable in
order that all statutes, including administrative
rules that are intended to enforce or implement
existing laws, attain binding force and effect, to
wit:
We hold therefore that all statutes, including
those of local application and private laws, shall
be published as a condition for their effectivity,
which shall begin fifteen days after publication
unless a different effectivity date is fixed by the
legislature.
Covered by this rule are presidential decrees and
executive orders promulgated by the President in
the exercise of legislative powers whenever the
same are validly delegated by the legislature or,
at present, directly conferred by the Constitution.
Administrative rules and regulations must also be
published if their purpose is to enforce or
implement existing law pursuant also to a valid
delegation. 53
There is no basis for the argument of petitioner
that the validity of its administrative orders
cannot be collaterally attacked. To the contrary,
we have previously declared that a party may
raise the unconstitutionality or invalidity of an
administrative regulation on every occasion that
said regulation is being enforced. 54 Since it is
petitioner which first invoked its administrative
orders to justify the increase in lease rentals of
respondent, then respondent may raise before
the court the invalidity of said administrative
orders on the ground of non-publication thereof.
Finally, petitioner cannot oppose the renewal of
the lease because of estoppel. Our following
disquisition in Kalalo v. Luz 55 is relevant herein:
Under Article 1431 of the Civil Code, in order that
estoppel may apply the person, to whom
representations have been made and who claims
the estoppel in his favor must have relied or
acted on such representations. Said article
provides:
"Art. 1431.Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon."
ACHEaI
An essential element of estoppel is that the
person invoking it has been influenced and has
relied on the representations or conduct of the
person sought to be estopped, and this element
is wanting in the instant case. In Cristobal vs.
Gomez, this Court held that no estoppel based on
a document can be invoked by one who has not
been misled by the false statements contained
therein. And in Republic of the Philippines vs.
Garcia, et al., this Court ruled that there is no
estoppel when the statement or action invoked as
its basis did not mislead the adverse party.
Estoppel has been characterized as harsh or
odious, and not favored in law. When misapplied,
estoppel becomes a most effective weapon to
accomplish an injustice, inasmuch as it shuts a
man's mouth from speaking the truth and debars
the truth in a particular case. Estoppel cannot be
sustained by mere argument or doubtful
inference; it must be clearly proved in all its
essential elements by clear, convincing and
satisfactory evidence. No party should be
precluded from making out his case according to
its truth unless by force of some positive principle
of law, and, consequently, estoppel in pais must
be applied strictly and should not be enforced
unless substantiated in every particular.
The essential elements of estoppel in pais may be
considered in relation to the party sought to be
estopped, and in relation to the party invoking
the estoppel in his favor. As related to the party
to be estopped, the essential elements are: (1)
conduct amounting to false representation or
concealment of material facts; or at least
calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert;
(2) intent, or at least expectation that his conduct
shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or
constructive, of the real facts. As related to the
party claiming the estoppel, the essential
9|OBLICON_Chaper4cases
elements are (1) lack of knowledge and of the
means of knowledge of the truth as the facts in
questions; (2) reliance, in good faith, upon the
conduct or statements of the party to be
estopped; (3) action or inaction based thereon of
such character as to change the position or status
of the party claiming the estoppel, to his injury,
detriment or prejudice. 56 (Emphases ours.)
Indeed, Velayo's Letters dated March 3 and 10,
1992 to petitioner may have already expressed
acquiescence to the non-renewal of the lease and
turn-over of the improvements on the subject
property to petitioner. But not long thereafter,
Alomesen, the new President of respondent,
already wrote another Letter dated March 25,
1992, which revoked Velayo's earlier Letters for
having been sent without authority of the Board
of Directors of respondent, insisted on the
renewal of the lease, and tendered payment of
past due lease rentals. Respondent, through
Alomesen, timely acted to correct Velayo's
mistakes. In the 15-day interval between Velayo's
Letter dated March 10, 1992 and Alomesen's
Letter dated March 25, 1992, there is no showing
that petitioner, relying in good faith on Velayo's
Letters, acted or did not act as to have caused it
injury, detriment, or prejudice. There is an utter
lack of clear, convincing, and satisfactory
evidence on the part of petitioner, as the party
claiming estoppel, of the second and third
elements for the application of said principle
against respondent. cDCSET
WHEREFORE, the instant Petition is hereby
DENIED for lack of merit. The Decision dated
January 8, 2004 of the Court Appeals in CA-G.R.
CV No. 68787, which affirmed the Decision dated
October 29, 1999 of Branch 111 of the RTC of
Pasay City in Civil Case No. 8847, is hereby
AFFIRMED.
SO ORDERED.
Corona, C.J., Bersamin, Del Castillo and Villarama,
Jr., JJ., concur.
(Cecilleville Realty and Service Corp. v.
Spouses Acua, G.R. No. 162074, July 13,
2009)
FIRST DIVISION
[G.R. No. 162074. July 13, 2009.]
CECILLEVILLE REALTY AND SERVICE
CORPORATION, petitioner, vs. SPOUSES TITO
ACUA and OFELIA B. ACUA, respondents.
DECISION
CARPIO, J p:
The Case
This is a petition for review 1 assailing the
Amended Decision 2 promulgated on 30 January
2004 of the Court of Appeals (appellate court) in
CA-G.R. CV No. 56623. The appellate court
affirmed the Resolution 3 dated 14 February 1997
of Branch 225, Regional Trial Court of Quezon City
(trial court) in Civil Case No. Q-96-27837 which
dismissed the complaint of petitioner Cecilleville
Realty and Service Corporation (Cecilleville)
against respondent spouses Tito and Ofelia Acua
(Acua spouses) on the ground of prescription.
The Facts
The trial court summarized the facts of the case
as follows:
Sometime in September 1981, the defendants
[Acua spouses] requested the plaintiff
[Cecilleville] thru its President, Jose A.
Resurreccion, to lend to them for one (1) year,
two (2) parcels of land owned by the plaintiff as
collaterals to secure a credit line from the
Prudential Bank and Trust Company
["Prudential"]. On September 21, 1981, thru a
secretary's certificate and by virtue of a board
resolution, the plaintiff lent to defendants the said
owner's copies of certificate of title. However, on
September 28, 1991, defendant Ofelia B. Acua
forged the signature of Lucia R. Reyes as
corporate secretary. By virtue of the fake
secretary's certificate, the defendants were able
to obtain a personal loan from "Prudential" in the
sum of P610,000.00 with said certificates as
collaterals and upon signing a Real Estate
Mortgage dated September 30, 1981 and two
Promissory Notes dated October 7, 1981 and
October 15, 1981. Due to the defendants' default
in the payment of their indebtedness,
"Prudential" threatened to extrajudicially
foreclose the real estate mortgage on plaintiff's
properties thru a notice of auction sale. To avoid
foreclosure proceedings on its properties, the
plaintiff was forced to settle defendants'
obligations to "Prudential" in the amount of
P3,367,474.42. Subsequently, several written
demands for reimbursement were sent by the
plaintiff to the defendants. Nevertheless, the
defendants failed to pay their obligation. Hence,
the filing of the instant case. TEIHDa
In their motion, defendants contend that the
instant complaint should be dismissed on the
grounds of prescription, laches and res judicata.
The defendants insist that the action of the
plaintiff is based on fraud or forgery of a
secretary's certificate. The forgery allegedly
happened on September 28, 1981 or fifteen (15)
years ago. Therefore, the plaintiff should have
brought the instant action within the period
provided for in Article 1146 of the Civil Code.
Moreover, the defendants argue that the
plaintiff's inordinate delay in the filing of the
instant suit clearly shows that it has abandoned
its claim against the defendants and therefore
guilty of laches. Consequently, the defendants
aver that the forgery issue has been passed upon
in CA-G.R. CV No. 35452. The same was litigated
in Civil Case No. Q-59789, Branch 78, Regional
Trial Court, Quezon City "where the plaintiff tried
unsuccessfully to have the contract of real estate
mortgage involving the same properties, between
defendant Ofelia Acua and the Prudential Bank
and Trust Company, annulled on the same ground
raised here." Hence, the principle of res judicata
applies. 4
This Court, in its resolution in G.R. No. 109488,
affirmed the appellate court's decision in CA-G.R.
10 | O B L I C O N _ C h a p e r 4 c a s e s
CV No. 35452 that Cecilleville ratified the
mortgage contract between the Acua spouses
and Prudential. The dispositive portion of the
decision in CA-G.R. CV No. 35452 reads:
WHEREFORE, the appeal of appellant Cecilleville
Realty and Service Corporation should be, as it is
hereby, DISMISSED. Finding merit to the appeal of
Prudential Bank & Trust Company, the writ of
preliminary injunction heretofore issued by the
trial court is hereby LIFTED, and appellant Bank
can now proceed with the foreclosure
proceedings of the mortgaged properties.
As a corollary thereto, appellant Cecilleville is
hereby ordered to pay appellant Prudential Bank
the interests, penalty and service charges
stipulated in the promissory notes secured by the
mortgage, accruing from the time the writ of
preliminary injunction was issued until the said
promissory notes are fully paid. No costs.
SO ORDERED. 5
After Cecilleville paid Prudential, Cecilleville filed
the present action to claim reimbursement from
the Acua spouses.
The Ruling of the Trial Court
In its Resolution dated 14 February 1997, the trial
court dismissed Cecilleville's complaint on the
ground of prescription. The trial court found that
the complaint expressly alleged that Cecilleville
discovered the fraud on 28 September 1981.
Therefore, Cecilleville had only four years from
discovery of the fraud within which to file the
appropriate action. The present action was filed
on 20 June 1996, clearly beyond the prescriptive
period.
The Ruling of the Appellate Court
Cecilleville lodged an appeal before the appellate
court. In its Decision promulgated on 14 January
2003, the appellate court reversed and set aside
the trial court's ruling and decided in favor of
Cecilleville. The appellate court stated that
Cecilleville has two causes of action against the
Acua spouses: reimbursement of a sum of
money and damages arising from fraud.
Cecilleville's action for reimbursement was filed
on 20 June 1996, barely two months after 23 April
1996, when Cecilleville made an extrajudicial
demand to pay. Two months is well within the
five-year prescriptive period prescribed in Article
1149 of the Civil Code. On the other hand, the
appellate court declared that the complaint did
not mention the date of Cecilleville's discovery of
Ofelia Acua's forgery of Lucia Reyes' signature.
The appellate court concluded that the trial court
erred in declaring Cecilleville's claim for damages
barred by prescription and laches. The appellate
court also declared that there is no identity of
parties, subject matter and causes of action
between the present case and that of G.R. No.
109488 between Cecilleville and Prudential.
Hence, the principle of res judicata does not
apply. caIEAD
The dispositive portion of the appellate court's 14
January 2003 Decision reads:
WHEREFORE, the instant appeal is GRANTED and
the assailed resolution of the Regional Trial Court
of Quezon City, Branch 225, in Civil Case No. Q-
96-27837 is hereby REVERSED and SET ASIDE.
Let this case be remanded to the trial court for
further proceedings.
SO ORDERED. 6
On motion for reconsideration filed by the Acua
spouses, the appellate court promulgated an
amended decision on 30 January 2004 which
affirmed the trial court's decision. The appellate
court ruled that Cecilleville's claim for
reimbursement of its payment to Prudential is
predicated on the fraud allegedly committed by
the Acua spouses. Without the alleged personal
loan of the Acua spouses, there would be no
foreclosure to forestall and no basis for
Cecilleville's claim for reimbursement. Actions for
relief on the ground of fraud may be brought
within four years from discovery of the fraud. In
its brief filed before the appellate court,
Cecilleville stated that it learned of the existence
of the falsified Secretary's Certificate on 20
January 1987. Cecilleville filed the present case
on 20 June 1996, or more than nine years after
the discovery of the fraud. Thus, Cecilleville's
action is barred by prescription. The dispositive
portion of the appellate court's amended decision
reads:
WHEREFORE, the instant motion for
reconsideration is GRANTED. The decision, dated
14 January 2003, of this Court is accordingly,
RECONSIDERED and SET ASIDE. The assailed
resolution, dated 14 February 1997, of the
Regional Trial Court of Quezon City, Branch 225,
in Civil Case No. Q-96-27837, is hereby
AFFIRMED.
SO ORDERED. 7
The Issues
Cecilleville mentions two grounds in its appeal
before this Court. First, the appellate court
gravely erred because its amended decision is
premised on a misapprehension of facts.
Cecilleville alleges that its claim for
reimbursement is not based on fraud but on a
ratified third-party real estate mortgage contract
to accommodate the Acua spouses. Second, the
appellate court's amended decision is not in
accord with law or with this Court's decisions.
Cecilleville theorizes that its ratification
extinguished the action to annul the real estate
mortgage and made the real estate mortgage
valid and enforceable. Thus, Cecilleville demands
reimbursement on the basis of a ratified real
estate mortgage.
The Ruling of the Court
We see merit in the petition. TADIHE
The facts of the case are simple: The Acua
spouses obtained a loan from Prudential secured
11 | O B L I C O N _ C h a p e r 4 c a s e s
by a real estate mortgage on Cecilleville's
property. The Acua spouses defaulted on their
loan, and Prudential initiated foreclosure
proceedings. Cecilleville tried to annul the real
estate mortgage but failed when the Court ruled
that Cecilleville had ratified the real estate
mortgage. In effect, Cecilleville became a third-
party accommodation mortgagor. Cecilleville paid
Prudential to avoid foreclosure of its mortgaged
properties. Cecilleville repeatedly asked the
Acua spouses to reimburse what it paid
Prudential, but the Acua spouses refused to do
so.
From the facts above, we see that Cecilleville paid
the debt of the Acua spouses to Prudential as an
interested third party. The second paragraph of
Article 1236 of the Civil Code reads:
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Even if the Acua spouses insist that Cecilleville's
payment to Prudential was without their
knowledge or against their will, Article 1302 (3) of
the Civil Code states that Cecilleville still has a
right to reimbursement, thus:
When, even without the knowledge of the debtor,
a person interested in the fulfillment of the
obligation pays, without prejudice to the effects
of confusion as to the latter's share.
Cecilleville clearly has an interest in the
fulfillment of the obligation because it owns the
properties mortgaged to secure the Acua
spouses' loan. When an interested party pays the
obligation, he is subrogated in the rights of the
creditor. 8 Because of its payment of the Acua
spouses' loan, Cecilleville actually steps into the
shoes of Prudential and becomes entitled, not
only to recover what it has paid, but also to
exercise all the rights which Prudential could have
exercised. There is, in such cases, not a real
extinguishment of the obligation, but a change in
the active subject. 9
Cecilleville's cause of action against the Acua
spouses is one created by law; hence, the action
prescribes in ten years. 10 Prescription accrues
from the date of payment by Cecilleville to
Prudential of the Acua spouses' debt on 5 April
1994. Cecilleville's present complaint against the
Acua spouses was filed on 20 June 1996, which
was almost two months from the extrajudicial
demands to pay on 9 and 23 April 1996. Whether
we use the date of payment, the date of the last
written demand for payment, or the date of
judicial demand, it is clear that Cecilleville's
cause of action has not yet prescribed.
Finally, considering the length of time of litigation
and the fact that the records of the case are
before this Court, we deem it prudent to declare
the Acua spouses' liability to Cecilleville in the
following amounts:
a. P3,367,474.42, representing the amount paid
by Cecilleville to Prudential; and ISTECA
b. interest on the P3,367,474.42 at 16% per
annum, this being the interest rate upon default
on the promissory note to Prudential to which
Cecilleville is subrogated. Interest shall be
calculated from 9 April 1996, the date of
Cecilleville's first written demand to the Acua
spouses after its payment to Prudential.
The Acua spouses shall also pay attorney's fees
to Cecilleville equivalent to 5% of the total award.
11
WHEREFORE, we GRANT the petition. We SET
ASIDE the Amended Decision promulgated on 30
January 2004 of the Court of Appeals in CA-G.R.
CV No. 56623. Respondent spouses Tito Acua
and Ofelia B. Acua shall pay petitioner
Cecilleville Realty and Service Corporation the
following: P3,367,474.42, representing the
amount paid by Cecilleville Realty and Service
Corporation to Prudential Bank and Trust
Company; and interest on the P3,367,474.42 at
16% per annum. Interest shall be calculated from
9 April 1996 until full payment. Spouses Tito
Acua and Ofelia B. Acua shall also pay
attorney's fees to Cecilleville Realty and Service
Corporation equivalent to 5% of the total award.
SO ORDERED.
Puno, C.J., Corona, Leonardo-de Castro and
Bersamin, JJ., concur.
(Republic v. De Guzman, G.R. No. 175021,
June 15, 2011)
FIRST DIVISION
[G.R. No. 175021. June 15, 2011.]
REPUBLIC OF THE PHILIPPINES, represented by
the CHIEF OF THE PHILIPPINE NATIONAL POLICE,
petitioner, vs. THI THU THUY T. DE GUZMAN,
respondent.
DECISION
LEONARDO-DE CASTRO, J p:
This is a Petition for Review on Certiorari 1 filed
by Republic of the Philippines, as represented by
the Chief of the Philippine National Police (PNP),
of the September 27, 2006 Decision 2 of the
Court of Appeals in CA-G.R. CV No. 80623, which
affirmed with modification the September 8, 2003
Decision 3 of the Regional Trial Court (RTC),
Branch 222, of Quezon City in Civil Case No. Q99-
37717.
Respondent is the proprietress of Montaguz
General Merchandise (MGM), 4 a contractor
accredited by the PNP for the supply of office and
construction materials and equipment, and for
the delivery of various services such as printing
and rental, repair of various equipment, and
renovation of buildings, facilities, vehicles, tires,
and spare parts. 5
On December 8, 1995, the PNP Engineering
Services (PNPES), released a Requisition and
Issue Voucher 6 for the acquisition of various
12 | O B L I C O N _ C h a p e r 4 c a s e s
building materials amounting to Two Million Two
Hundred Eighty-Eight Thousand Five Hundred
Sixty-Two Pesos and Sixty Centavos
(P2,288,562.60) for the construction of a four-
storey condominium building with roof deck at
Camp Crame, Quezon City. 7
Respondent averred that on December 11, 1995,
MGM and petitioner, represented by the PNP,
through its chief, executed a Contract of
Agreement 8 (the Contract) wherein MGM, for the
price of P2,288,562.60, undertook to procure and
deliver to the PNP the construction materials
itemized in the purchase order 9 attached to the
Contract. Respondent claimed that after the PNP
Chief approved the Contract and purchase order,
10 MGM, on March 1, 1996, proceeded with the
delivery of the construction materials, as
evidenced by Delivery Receipt Nos. 151-153, 11
Sales Invoice Nos. 038 and 041, 12 and the
"Report of Public Property Purchase" 13 issued by
the PNP's Receiving and Accounting Officers to
their Internal Auditor Chief. Respondent
asseverated that following the PNP's inspection of
the delivered materials on March 4, 1996, 14 the
PNP issued two Disbursement Vouchers; one in
the amount of P2,226,147.26 in favor of MGM, 15
and the other, 16 in the amount of P62,415.34,
representing the three percent (3%) withholding
tax, in favor of the Bureau of Internal Revenue
(BIR). 17
On November 5, 1997, the respondent, through
counsel, sent a letter dated October 20, 1997 18
to the PNP, demanding the payment of
P2,288,562.60 for the construction materials
MGM procured for the PNP under their December
1995 Contract. HSTAcI
On November 17, 1997, the PNP, through its
Officer-in-Charge, replied 19 to respondent's
counsel, informing her of the payment made to
MGM via Land Bank of the Philippines (LBP) Check
No. 0000530631, 20 as evidenced by Receipt No.
001, 21 issued by the respondent to the PNP on
April 23, 1996. 22
On November 26, 1997, respondent, through
counsel, responded by reiterating her demand 23
and denying having ever received the LBP check,
personally or through an authorized person. She
also claimed that Receipt No. 001, a copy of
which was attached to the PNP's November 17,
1997 letter, could not support the PNP's claim of
payment as the aforesaid receipt belonged to
Montaguz Builders, her other company, which
was also doing business with the PNP, and not to
MGM, with which the contract was made.
On May 5, 1999, respondent filed a Complaint for
Sum of Money against the petitioner, represented
by the Chief of the PNP, before the RTC, Branch
222 of Quezon City. 24 This was docketed as Civil
Case No. Q99-37717.
The petitioner filed a Motion to Dismiss 25 on July
5, 1999, on the ground that the claim or demand
set forth in respondent's complaint had already
been paid or extinguished, 26 as evidenced by
LBP Check No. 0000530631 dated April 18, 1996,
issued by the PNP to MGM, and Receipt No. 001,
which the respondent correspondingly issued to
the PNP. The petitioner also argued that aside
from the fact that the respondent, in her October
20, 1997 letter, demanded the incorrect amount
since it included the withholding tax paid to the
BIR, her delay in making such demand "[did] not
speak well of the worthiness of the cause she
espouse[d]." 27
Respondent opposed petitioner's motion to
dismiss in her July 12, 1999 Opposition 28 and
September 10, 1999 Supplemental Opposition to
Motion to Dismiss. 29 Respondent posited that
Receipt No. 001, which the petitioner claimed was
issued by MGM upon respondent's receipt of the
LBP check, was, first, under the business name
"Montaguz Builders," an entity separate from
MGM. Next, petitioner's allegation that she
received the LBP check on April 19, 1996 was
belied by the fact that Receipt No. 001, which
was supposedly issued for the check, was dated
four days later, or April 23, 1996. Moreover,
respondent averred, the PNP's own Checking
Account Section Logbook or the Warrant Register,
showed that it was one Edgardo Cruz (Cruz) who
signed for the check due to MGM, 30 contrary to
her usual practice of personally receiving and
signing for checks payable to her companies.
SAaTHc
After conducting hearings on the Motion to
Dismiss, the RTC issued an Order 31 on May 4,
2001, denying the petitioner's motion for lack of
merit. The petitioner thereafter filed its Answer,
32 wherein it restated the same allegations in its
Motion to Dismiss.
Trial on the merits followed the pre-trial
conference, which was terminated on June 25,
2002 when the parties failed to arrive at an
amicable settlement. 33
On September 3, 2002, shortly after respondent
was sworn in as a witness, and after her counsel
formally offered her testimony in evidence, Atty.
Norman Bueno, petitioner's counsel at that time,
made the following stipulations in open court:
cAaTED
Atty. Bueno
(To Court)
Your Honor, in order to expedite the trial, we will
admit that this witness was contracted to deliver
the construction supplies or materials. We will
admit that she complied, that she actually
delivered the materials. We will admit that Land
Bank Corporation check was issued although we
will not admit that the check was not released to
her, as [a] matter of fact, we have the copy of the
check. We will admit that Warrant Register
indicated that the check was released although
we will not admit that the check was not received
by the [respondent].
Court (To Atty. Albano)
13 | O B L I C O N _ C h a p e r 4 c a s e s
So, the issues here are whether or not the
[respondent] received the check for the payment
of the construction materials or supplies and who
received the same. That is all. SHADcT
Atty. Albano
(To Court)
Yes, your Honor.
Court (To Atty. Albano)
I think we have an abbreviated testimony here.
Proceed. 34 (Emphasis ours.)
The stipulations made by the petitioner through
Atty. Bueno were in consonance with the
admissions it had previously made, also through
Atty. Bueno, in its Answer, 35 and pre-trial brief:
36
Answer:
IX
It ADMITS the allegation in paragraph 9 of the
Complaint that [respondent] delivered to the PNP
Engineering Service the construction materials. It
also ADMITS the existence of Receipt Nos. 151,
152 and 153 alleged in the same paragraph,
copies of which are attached to the Complaint as
Annexes "G," "G-1" and "G-2." 37 (Emphasis
ours.) AHcaDC
Pre-trial Brief:
III
ADMISSIONS
3.1. Facts and/or documents admitted
For brevity, [petitioner] admit[s] only the
allegations in [respondent's] Complaint and the
annexes thereto that were admitted in the
Answer. 38 (Emphases ours.)
With the issue then confined to whether
respondent was paid or not, the RTC proceeded
with the trial.
Respondent, in her testimony, narrated that on
April 18, 1996, she went to the PNP Finance
Center to claim a check due to one of her
companies, Montaguz Builders. As the PNP
required the issuance of an official receipt upon
claiming its checks, respondent, in preparation
for the PNP check she expected, already signed
Montaguz Builders Official Receipt No. 001, albeit
the details were still blank. However, upon
arriving at the PNP Finance Center, respondent
was told that the check was still with the LBP,
which could not yet release it. Respondent then
left for the Engineering Services Office to see
Captain Rama, along with Receipt No. 001, which
she had not yet issued. 39 Respondent claimed
that after some time, she left her belongings,
including her receipt booklet, at a bench in
Captain Rama's office when she went around the
Engineering Office to talk to some other people.
40 She reasoned that since she was already
familiar and comfortable with the people in the
PNPES Office, she felt no need to ask anyone to
look after her belongings, as it was her "normal
practice" 41 to leave her belongings in one of the
offices there. The next day, respondent alleged
that when she returned for the check due to
Montaguz Builders that she was not able to claim
the day before, she discovered for the first time
that Receipt No. 001, which was meant for that
check, was missing. Since she would not be able
to claim her check without issuing a receipt, she
just informed the releaser of the missing receipt
and issued Receipt No. 002 in its place. 42 After a
few months, respondent inquired with the PNP
Finance Center about the payment due to MGM
under the Contract of December 1995 and was
surprised to find out that the check payable to
MGM had already been released. Upon making
some inquiries, respondent learned that the
check, payable to MGM, in the amount of
P2,226,147.26, was received by Cruz, who signed
the PNP's Warrant Register. Respondent admitted
to knowing Cruz, as he was connected with
Highland Enterprises, a fellow PNP-accredited
contractor. However, she denied ever having
authorized Cruz or Highland Enterprises to
receive or claim any of the checks due to MGM or
Montaguz Builders. 43 When asked why she had
not filed a case against Cruz or Herminio Reyes,
the owner of Highland Enterprises, considering
the admitted fact that Cruz claimed the check
due to her, respondent declared that there was
no reason for her to confront them as it was the
PNP's fault that the check was released to the
wrong person. Thus, it was the PNP's problem to
find out where the money had gone, while her
course of action was to go after the PNP, as the
party involved in the Contract. 44
On April 29, 2003, petitioner presented Ms. Jesusa
Magtira, who was then the "check releaser" 45 of
the PNP, to prove that the respondent received
the LBP check due to MGM, and that respondent
herself gave the check to Cruz. 46 Ms. Magtira
testified that on April 23, 1996, she released the
LBP check payable to the order of MGM, in the
amount of P2,226,147.26, to the respondent
herein, whom she identified in open court. She
claimed that when she released the check to
respondent, she also handed her a voucher, and
a logbook also known as the Warrant Register, for
signing. 47 When asked why Cruz was allowed to
sign for the check, Ms. Magtira explained that this
was allowed since the respondent already gave
her the official receipt for the check, and it was
respondent herself who gave the logbook to Cruz
for signing. 48
The petitioner next presented Edgardo Cruz for
the purpose of proving that the payment
respondent was claiming rightfully belonged to
Highland Enterprises. Cruz testified that Highland
Enterprises had been an accredited contractor of
the PNP since 1975. In 1995, Cruz claimed that
the PNPES was tasked to construct "by
14 | O B L I C O N _ C h a p e r 4 c a s e s
administration" a condominium building. This
meant that the PNPES had to do all the work,
from the canvassing of the materials to the
construction of the building. The PNPES allegedly
lacked the funds to do this and so asked for
Highland Enterprises's help. 49 In a meeting with
its accredited contractors, the PNPES asked if the
other contractors would agree to the use of their
business name 50 for a two percent (2%)
commission of the purchase order price to avoid
the impression that Highland Enterprises was
monopolizing the supply of labor and materials to
the PNP. 51 Cruz alleged that on April 23, 1996,
he and the respondent went to the PNP Finance
Center to claim the LBP check due to MGM. Cruz
said that the respondent handed him the already
signed Receipt No. 001, which he filled up. He
claimed that the respondent knew that the LBP
check was really meant for Highland Enterprises
as she had already been paid her 2% commission
for the use of her business name in the
concerned transaction. 52
On September 8, 2003, the RTC rendered its
Decision, the dispositive of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of [respondent] and
against [petitioner] ordering the latter to pay
[respondent] the following sums:
(1) P2,226,147.26 representing the principal sum
plus interest at 14% per annum from April 18,
1996 until the same shall have been fully paid;
(2) 20% of the sum to be collected as attorney's
fees; and,
(3) Costs of suit. 53
The RTC declared that while Cruz's testimony
seemed to offer a plausible explanation on how
and why the LBP check ended up with him, the
petitioner, already admitted in its Answer, and
Pre-trial Brief, that MGM, did in fact deliver the
construction materials worth P2,288,562.60 to
the PNP. The RTC also pointed out the fact that
the petitioner made the same admissions in open
court to expedite the trial, leaving only one issue
to be resolved: whether the respondent had been
paid or not. Since this was the only issue, the RTC
said that it had no choice but to go back to the
documents and the "documentary evidence
clearly indicates that the check subject of this
case was never received by [respondent]." 54 In
addition, the PNP's own Warrant Register showed
that it was Edgardo Cruz who received the LBP
check, and Receipt No. 001 submitted by the
petitioner to support its claim was not issued by
MGM, but by Montaguz Builders, a different entity.
Finally, the RTC held that Cruz's testimony, which
appeared to be an afterthought to cover up the
PNP's blunder, were irreconcilable with the
petitioner's earlier declarations and admissions,
hence, not credit-worthy.
The petitioner appealed this decision to the Court
of Appeals, which affirmed with modification the
RTC's ruling on September 27, 2006:
WHEREFORE, the decision appealed from is
AFFIRMED with the MODIFICATION that the 14%
interest per annum imposed on the principal
amount is ordered reduced to 12%, computed
from November 16, 1997 until fully paid. The
order for the payment of attorney's fees and
costs of the suit is DELETED. 55
The Court of Appeals, in deciding against the
petitioner, held that the petitioner's admissions
and declarations, made in various stages of the
proceedings are express admissions, which
cannot be overcome by allegations of
respondent's implied admissions. Moreover,
petitioner cannot controvert its own admissions
and it is estopped from denying that it had a
contract with MGM, which MGM duly complied
with. The Court of Appeals agreed with the RTC
that the real issue for determination was whether
the petitioner was able to discharge its
contractual obligation with the respondent. The
Court of Appeals held that while the PNP's own
Warrant Register disclosed that the payment due
to MGM was received by Cruz, on behalf of
Highland Enterprises, the PNP's contract was
clearly with MGM, and not with Highland
Enterprises. Thus, in order to extinguish its
obligation, the petitioner should have directed its
payment to MGM unless MGM authorized a third
person to accept payment on its behalf. ITDHcA
The petitioner is now before this Court, praying
for the reversal of the lower courts' decisions on
the ground that "the Court of Appeals committed
a serious error in law by affirming the decision of
the trial court." 56
THE COURT'S RULING:
This case stemmed from a contract executed
between the respondent and the petitioner. While
the petitioner, in proclaiming that the
respondent's claim had already been
extinguished, initially insisted on having fulfilled
its contractual obligation, it now contends that
the contract it executed with the respondent is
actually a fictitious contract to conceal the fact
that only one contractor will be supplying all the
materials and labor for the PNP condominium
project.
Both the RTC and the Court of Appeals upheld the
validity of the contract between the petitioner
and the respondent on the strength of the
documentary evidence presented and offered in
Court and on petitioner's own stipulations and
admissions during various stages of the
proceedings.
It is worthy to note that while this petition was
filed under Rule 45 of the Rules of Court, the
assertions and arguments advanced herein are
those that will necessarily require this Court to re-
evaluate the evidence on record. AcSEHT
It is a well-settled rule that in a petition for review
under Rule 45, only questions of law may be
raised by the parties and passed upon by this
Court. 57
15 | O B L I C O N _ C h a p e r 4 c a s e s
This Court has, on many occasions, distinguished
between a question of law and a question of fact.
We held that when there is doubt as to what the
law is on a certain state of facts, then it is a
question of law; but when the doubt arises as to
the truth or falsity of the alleged facts, then it is a
question of fact. 58 "Simply put, when there is no
dispute as to fact, the question of whether or not
the conclusion drawn therefrom is correct, is a
question of law." 59 To elucidate further, this
Court, in Hko Ah Pao v. Ting 60 said:
One test to determine if there exists a question of
fact or law in a given case is whether the Court
can resolve the issue that was raised without
having to review or evaluate the evidence, in
which case, it is a question of law; otherwise, it
will be a question of fact. Thus, the petition must
not involve the calibration of the probative value
of the evidence presented. In addition, the facts
of the case must be undisputed, and the only
issue that should be left for the Court to decide is
whether or not the conclusion drawn by the CA
from a certain set of facts was appropriate. 61
(Emphases ours.)
In this case, the circumstances surrounding the
controversial LBP check are central to the issue
before us, the resolution of which, will require a
perusal of the entire records of the case including
the transcribed testimonies of the witnesses.
Since this is an appeal via certiorari, questions of
fact are not reviewable. As a rule, the findings of
fact of the Court of Appeals are final and
conclusive 62 and this Court will only review
them under the following recognized exceptions:
(1) when the inference made is manifestly
mistaken, absurd or impossible; (2) when there is
a grave abuse of discretion; (3) when the finding
is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court
of Appeals is based on misapprehension of facts;
(5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same
is contrary to the admissions of both appellant
and appellee; (7) when the findings of the Court
of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions
without citation of specific evidence on which
they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly
considered, would justify a different conclusion;
and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.
63
Although petitioner's sole ground to support this
petition was stated in such a manner as to
impress upon this Court that the Court of Appeals
committed an error in law, what the petitioner
actually wants us to do is to review and re-
examine the factual findings of both the RTC and
the Court of Appeals.
Since the petitioner has not shown this Court that
this case falls under any of the enumerated
exceptions to the rule, we are constrained to
uphold the facts as established by both the RTC
and the Court of Appeals, and, consequently, the
conclusions reached in the appealed decision.
Nonetheless, even if we were to exercise utmost
liberality and veer away from the rule, the
records will show that the petitioner had failed to
establish its case by a preponderance of
evidence. 64 Section 1, Rule 133 of the Revised
Rules of Court provides the guidelines in
determining preponderance of evidence: aIETCA
SECTION 1. Preponderance of evidence, how
determined. In civil cases, the party having the
burden of proof must establish his case by a
preponderance of evidence. In determining where
the preponderance or superior weight of evidence
on the issues involved lies, the court may
consider all the facts and circumstances of the
case, the witnesses' manner of testifying, their
intelligence, their means and opportunity of
knowing the facts to which they are testifying, the
nature of the facts to which they testify, the
probability or improbability of their testimony,
their interest or want of interest, and also their
personal credibility so far as the same may
legitimately appear upon the trial. The court may
also consider the number of witnesses, though
the preponderance is not necessarily with the
greater number.
Expounding on the concept of preponderance of
evidence, this Court in Encinas v. National
Bookstore, Inc., 65 held:
"Preponderance of evidence" is the weight, credit,
and value of the aggregate evidence on either
side and is usually considered to be synonymous
with the term "greater weight of the evidence" or
"greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in
the last analysis, means probability of the truth. It
is evidence which is more convincing to the court
as worthy of belief than that which is offered in
opposition thereto. 66
The petitioner avers that the Court of Appeals
should not have relied "heavily, if not solely" 67
on the admissions made by petitioner's former
counsel, thereby losing sight of the "secret
agreement" between the respondent and
Highland Enterprises, which explains why all the
documentary evidence were in respondent's
name. 68
The petitioner relies mainly on Cruz's testimony
to support its allegations. Not only did it not
present any other witness to corroborate Cruz,
but it also failed to present any documentation to
confirm its story. It is doubtful that the petitioner
or the contractors would enter into any "secret
agreement" involving millions of pesos based
purely on verbal affirmations. Meanwhile, the
respondent not only presented all the
documentary evidence to prove her claims, even
the petitioner repeatedly admitted that
16 | O B L I C O N _ C h a p e r 4 c a s e s
respondent had fully complied with her
contractual obligations. CSAaDE
The petitioner argued that the Court of Appeals
should have appreciated the clear and adequate
testimony of Cruz, and should have given it
utmost weight and credit especially since his
testimony was a "judicial admission against
interest a primary evidence which should have
been accorded full evidentiary value." 69
The trial court's appreciation of the witnesses'
testimonies is entitled to the highest respect
since it was in a better position to assess their
credibility. 70 The RTC held Cruz's testimony to be
"not credit worthy" 71 for being irreconcilable
with petitioner's earlier admissions. Contrary to
petitioner's contentions, Cruz's testimony cannot
be considered as a judicial admission against his
interest as he is neither a party to the case nor
was his admission against his own interest, but
actually against either the petitioner's or the
respondent's interest. Petitioner's statements on
the other hand, were deliberate, clear, and
unequivocal and were made in the course of
judicial proceedings; thus, they qualify as judicial
admissions. 72 In Alfelor v. Halasan, 73 this Court
held that:
A party who judicially admits a fact cannot later
challenge that fact as judicial admissions are a
waiver of proof; production of evidence is
dispensed with. A judicial admission also removes
an admitted fact from the field of controversy.
Consequently, an admission made in the
pleadings cannot be controverted by the party
making such admission and are conclusive as to
such party, and all proofs to the contrary or
inconsistent therewith should be ignored,
whether objection is interposed by the party or
not. The allegations, statements or admissions
contained in a pleading are conclusive as against
the pleader. A party cannot subsequently take a
position contrary of or inconsistent with what was
pleaded. 74
The petitioner admitted to the existence and
validity of the Contract of Agreement executed
between the PNP and MGM, as represented by
the respondent, on December 11, 1995. It
likewise admitted that respondent delivered the
construction materials subject of the Contract,
not once, but several times during the course of
the proceedings. The only matter petitioner
assailed was respondent's allegation that she had
not yet been paid. If Cruz's testimony were true,
the petitioner should have put respondent in her
place the moment she sent a letter to the PNP,
demanding payment for the construction
materials she had allegedly delivered. Instead,
the petitioner replied that it had already paid
respondent as evidenced by the LBP check and
the receipt she supposedly issued. This line of
defense continued on, with the petitioner
assailing only the respondent's claim of
nonpayment, and not the rest of respondent's
claims, in its motion to dismiss, its answer, its
pre-trial brief, and even in open court during the
respondent's testimony. Section 4, Rule 129 of
the Rules of Court states:
SECTION 4. Judicial Admissions. An admission,
verbal or written, made by a party in the course
of the proceedings in the same case, does not
require proof. The admission may be contradicted
only by showing that it was made through
palpable mistake or that no such admission was
made. TEDaAc
Petitioner's admissions were proven to have been
made in various stages of the proceedings, and
since the petitioner has not shown us that they
were made through palpable mistake, they are
conclusive as to the petitioner. Hence, the only
question to be resolved is whether the
respondent was paid under the December 1995
Contract of Agreement.
The RTC and the Court of Appeals correctly ruled
that the petitioner's obligation has not been
extinguished. The petitioner's obligation consists
of payment of a sum of money. In order for
petitioner's payment to be effective in
extinguishing its obligation, it must be made to
the proper person. Article 1240 of the Civil Code
states:
Art. 1240. Payment shall be made to the person
in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it.
In Cembrano v. City of Butuan, 75 this Court
elucidated on how payment will effectively
extinguish an obligation, to wit:
Payment made by the debtor to the person of the
creditor or to one authorized by him or by the law
to receive it extinguishes the obligation. When
payment is made to the wrong party, however,
the obligation is not extinguished as to the
creditor who is without fault or negligence even if
the debtor acted in utmost good faith and by
mistake as to the person of the creditor or
through error induced by fraud of a third person.
cTADCH
In general, a payment in order to be effective to
discharge an obligation, must be made to the
proper person. Thus, payment must be made to
the obligee himself or to an agent having
authority, express or implied, to receive the
particular payment. Payment made to one having
apparent authority to receive the money will, as a
rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is
made to one who by law is authorized to act for
the creditor, it will work a discharge. The receipt
of money due on a judgment by an officer
authorized by law to accept it will, therefore,
satisfy the debt. 76
The respondent was able to establish that the LBP
check was not received by her or by her
authorized personnel. The PNP's own records
show that it was claimed and signed for by Cruz,
who is openly known as being connected to
17 | O B L I C O N _ C h a p e r 4 c a s e s
Highland Enterprises, another contractor. Hence,
absent any showing that the respondent agreed
to the payment of the contract price to another
person, or that she authorized Cruz to claim the
check on her behalf, the payment, to be effective
must be made to her. 77
The petitioner also challenged the RTC's findings,
on the ground that it "overlooked material fact
and circumstance of significant weight and
substance." 78 Invoking the doctrine of adoptive
admission, the petitioner pointed out that the
respondent's inaction towards Cruz, whom she
has known to have claimed her check as early as
1996, should be taken against her. Finally, the
petitioner contends that Cruz's testimony should
be taken against respondent as well, under Rule
130, Sec. 32 of the Revised Rules on Evidence,
since she has not presented any "controverting
evidence . . . notwithstanding that she personally
heard it." 79
The respondent has explained her inaction
towards Cruz and Highland Enterprises. Both the
RTC and the Court of Appeals have found her
explanation sufficient and this Court finds no
cogent reason to overturn the assessment by the
trial court and the Court of Appeals of the
respondent's testimony. It may be recalled that
the respondent argued that since it was the PNP
who owed her money, her actions should be
directed towards the PNP and not Cruz or
Highland Enterprises, against whom she has no
adequate proof. 80 Respondent has also
adequately explained her delay in filing an action
against the petitioner, particularly that she did
not want to prejudice her other pending
transactions with the PNP. 81
The petitioner claims that the RTC "overlooked
material fact and circumstance of significant
weight and substance," 82 but it ignores all the
documentary evidence, and even its own
admissions, which are evidence of the greater
weight and substance, that support the
conclusions reached by both the RTC and the
Court of Appeals.
We agree with the Court of Appeals that the RTC
erred in the interest rate and other monetary
sums awarded to respondent as baseless.
However, we must further modify the interest
rate imposed by the Court of Appeals pursuant to
the rule laid down in Eastern Shipping Lines, Inc.
v. Court of Appeals 83 :
I. When an obligation, regardless of its source,
i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable
damages. TAEcCS
II. With regard particularly to an award of interest
in the concept of actual and compensatory
damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it
consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due
should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be
computed from default, i.e., from judicial or
extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be
imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages
except when or until the demand can be
established with reasonable certainty.
Accordingly, where the demand is established
with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially
or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably
established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to
have been reasonably ascertained). The actual
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a
sum of money becomes final and executory, the
rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction,
this interim period being deemed to be by then
an equivalent to a forbearance of credit. 84
Since the obligation herein is for the payment of a
sum of money, the legal interest rate to be
imposed, under Article 2209 of the Civil Code is
six percent (6%) per annum:
Art. 2209. If the obligation consists in the
payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is
six per cent per annum.
Following the guidelines above, the legal interest
of 6% per annum is to be imposed from
November 16, 1997, the date of the last demand,
and 12% in lieu of 6% from the date this decision
becomes final until fully paid.
Petitioner's allegations of sham dealings involving
our own government agencies are potentially
disturbing and alarming. If Cruz's testimony were
true, this should be a lesson to the PNP not to
dabble in spurious transactions. Obviously, if it
can afford to give a 2% commission to other
contractors for the mere use of their business
names, then the petitioner is disbursing more
money than it normally would in a legitimate
18 | O B L I C O N _ C h a p e r 4 c a s e s
transaction. It is recommended that the proper
agency investigate this matter and hold the
involved personnel accountable to avoid any
similar occurrence in the future. SEHTAC
WHEREFORE, the Petition is hereby DENIED and
the Decision of the Court of Appeals in C.A. G.R.
CV No. 80623 dated September 27, 2006 is
AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) per
annum on the amount of P2,226,147.26,
computed from the date of the last demand or on
November 16, 1997. A TWELVE PERCENT (12%)
per annum interest in lieu of SIX PERCENT (6%)
shall be imposed on such amount upon finality of
this decision until the payment thereof.
SO ORDERED.
Velasco, Jr., * Bersamin, ** Del Castillo and Perez,
JJ., concur.
(Monte de Piedad v. Rodrigo, G.R. No.
42928, August 18, 1936)
EN BANC
[G.R. No. 42928. August 18, 1936.]
MONTE DE PIEDAD Y CAJA DE AHORROS DE
MANILA, plaintiff-appellant, vs. JOSE FERNANDO
RODRIGO, defendant-appellant.
Jose Ma. Cavanna for plaintiff-appellant.
The defendant-appellant in his own behalf.
SYLLABUS
1. DEBTOR AND CREDITOR; PAYMENT BY A JOINT
DEBTOR IN EXCESS OF WHAT HE SHOULD PAY.
The payment made by a joint judgment debtor in
excess of what he should pay, for the benefit of a
codebtor and cosurety, cannot be considered as a
payment unduly made under article 1895 of the
Civil Code but as a payment made by a person
interested in the performance of the obligation in
accordance with the provision of article 1158 of
said Code.
DECISION
VILLA-REAL, J p:
These are two appeals, one taken by the plaintiff
company Monte de Piedad y Caja de Ahorros de
Manila and the other by the defendant Jose
Fernando Rodrigo, from the order of the Court of
First Instance of Manila of September 20, 1934,
denying the motion of the former praying for the
issuance of an alias writ of execution in its favor
or in favor of the spouses Luis Izquierdo and
Concepcion Cabigao, its alleged assignees; and
that of the latter praying that the said Monte de
Piedad y Caja de Ahorros de Manila be ordered to
return to said defendant Jose Fernando Rodrigo
the sum of P6,000, with interest thereon, which
said defendant alleges to have paid in excess to
said plaintiff company.
In support of its appeal, the appellant Monte de
Piedad y Caja de Ahorros de Manila assigns the
following alleged errors as committed by the
court a quo in its said order, to wit:
"1. The court a quo erred in declaring that the
plaintiff Monte de Piedad considered its credit
fully paid when it received the seven thousand
pesos and released the third and last mortgaged
property.
"2. The court a quo likewise erred in not holding
that the defendant Rodrigo continued to be under
obligation to pay to the plaintiff or to the
assignees thereof the unpaid balance of his
mortgage debt declared in a final judgment.
"3. The court a quo likewise erred in not granting
the motion of the plaintiff and its assignees for
the issuance of an alias writ of execution for the
unpaid balance of the mortgage debt in question.
The appellant Jose Fernando Rodrigo, in turn,
assigns the following alleged errors as committed
by the court a quo in its said judgment, to wit:
"1. The lower court erred in declaring that said
appellant did not erroneously make any undue
payment.
"2. The lower court erred in believing that the
indivisibility of the mortgage erases the
independence of the joint obligation.
"3. The lower court erred in not ordering the
Monte de Piedad y Caja de Ahorros de Manila to
return to said defendant-appellant the sum of
P6,000 paid by him in excess."
The pertinent facts necessary for the resolution of
the questions raised by the parties in their
respective briefs, are as follows:
Juana Gatmaitan had obtained a loan of P15,000
from the Monte de Piedad y Caja de Ahorros de
Manila. To secure the performance of her
obligation she mortgaged to said company all her
participation in the real properties described in
certificate of title No. 22559 issued in her favor
and of Juana M. Torres. The latter, as coowner, in
turn, constituted in the same deed a mortgage on
all her right and participation in the real
properties described in said certificate of title.
Inasmuch as Juana Gatmaitan had transferred all
her rights, interest and participation in the
properties described in said certificate of title to
the defendant-appellant Jose Fernando Rodrigo,
the latter assumed Juana Gatmaitan's said
obligation in the sum of P15,000 and, together
with his coowner Juana M. Torres, he again
mortgaged to the creditor company all the
properties described in transfer certificate of title
No. 29292 which substituted the former original
certificate of title No. 22559. In said mortgage,
the appellant Jose Fernando Rodrigo included
another real property belonging to him, situated
in Bulacan and described in the mortgage deed,
Exhibit C, which was registered in the registry of
deeds in accordance with Act No. 2837. The
payment of the debt having become due and the
same not having been paid, the mortgagee
Monte de Piedad y Caja de Ahorros de Manila
brought the corresponding action for foreclosure
against Jose Fernando Rodrigo and Juana M.
Torres in the Court of First Instance of Manila,
which action was docketed as civil case No.
37165. Juana M. Torres died during the pendency
of the action and was substituted by Potenciana
Yupangco as judicial administratrix of her estate.
On November 18, 1930, the Court of First
Instance of Manila rendered judgment therein,
the dispositive part of which reads as follows:
"Wherefore, judgment is rendered in favor of the
plaintiff, sentencing the defendants to pay to the
plaintiff the said sums of P17, 481.17, P98 and
19 | O B L I C O N _ C h a p e r 4 c a s e s
P1,500, plus the interest on P15,000 at 10 per
cent per annum from the 4th of October of this
year, until fully paid, with costs. Should the
defendants fail to pay the sums in question
representing the amount of this judgment within
the period of three months, the court will order
the sale at public auction of the properties
described in Exhibits A, A-1, B and C, as prayed
for by the plaintiff in its complaint."
Upon appeal, said case which was docketed
under G. R. No. 35132 (Monte de Piedad y Caja de
Ahorros de Manila vs. Fernando Rodrigo and De
Yupangco, 56 Phil., 310), was affirmed in toto by
this court.
As neither the defendant Jose Fernando Rodrigo
nor his coguarantor Juana M. Torres had not paid
the mortgage debt within the period fixed in the
judgment, the corresponding writ of execution
was issued and two of the mortgaged parcels of
land, the ones described in Exhibits A, A-1 and B,
were sold at public auction for the sum of
P10,000 to the plaintiff company, having been
the highest bidder.
One of said two parcels was the common
property of the defendants and the other parcel,
which is situated in Manila and assessed at
P20,000 in the land tax registry, exclusively
belongs to the defendant Jose Fernando Rodrigo.
To avoid a similar attachment and sale at public
auction of the third mortgaged real property
situated in Bulacan (Exhibit C), which exclusively
belonged to Jose Fernando Rodrigo, the latter, on
November 4, 1932, made a compromise with the
plaintiff by negotiating and having the Luzon
Surety Co., Inc., which was his surety during the
pendency of said cause on appeal, pay to the
plaintiff company, for the release of the said
property in Bulacan from the mortgage, the
proceeds of the bond amounting to P5,000, plus
the sum of P2,000, or a total of P7,000, which the
plaintiff company acknowledges to have received.
On January 31, 1933, the defendant-appellant
Jose Fernando Rodrigo brought an action in the
Court of First Instance of Bulacan against the
spouses Luis Izquierdo and Concepcion Cabigao
for the recovery of a sum of money, which action
was docketed as civil case No. 4258 of said court,
judgment having been rendered therein ordering
the defendants to pay to the plaintiff the sum of
P2,500. Upon appeal, this court affirmed said
judgment in a decision of December 21, 1933
(Fernando Rodrigo vs. Cabigao and Izquierdo, 59
Phil., 187).
On March 13, 1934, the plaintiff-appellant Monte
de Piedad y Caja de Ahorros de Manila, in a public
instrument, assigned to the spouses Luis
Izquierdo and Concepcion Cabigao an alleged
balance in its favor in the sum of P6,401.50.
As a writ of execution had been issued against
the spouses Luis Izquierdo and Concepcion
Cabigao in favor of Jose Fernando Rodrigo in said
civil case No. 4258, said spouses, on March 16,
1934, filed a motion praying that the judgment
rendered in favor Jose Fernando Rodrigo be
declared paid, compensated and satisfied with an
amount from the proceeds of the judgment
assigned to them by the Monte de Piedad y Caja
de Ahorros de Manila against said Jose Fernando
Rodrigo, sufficient to cover the amount of the
judgment in favor of the defendant-appellant.
In an order of March 26, 1934, the Court of First
Instance of Bulacan, then presided over by Judge
Buenaventura Ocampo, denied said motion,
having found it not well founded.
From said order Luis Izquierdo and Concepcion
Cabigao appealed to this court (G. R. No. 42147,
Feb. 11, 1935 [61 Phil., 1023]) and a division of
three thereof rendered judgment the dispositive
part of which reads:
"Without deciding whether or not the motion in
question was properly presented in this case it is
clear that under the above facts the trial court did
not err in denying that motion. The orders
appealed from should be and are hereby affirmed
with costs in this instance against the
defendants-appellants."
In view of said denial and to collect the balance in
question, the spouses Luis Izquierdo and
Concepcion Cabigao, together with the Monte de
Piedad y Caja de Ahorros de Manila, filed a
petition on April 9, 1934, praying for the issuance
of an alias writ of execution in accordance with
section 260 of the Code of Civil Procedure.
Said petition was opposed by the defendant-
appellant Jose Fernando Rodrigo who, in turn,
demanded the return of the sum of P6,000 with
interest thereon, which he claims to have paid in
excess to said plaintiff company.
The first question to be decided in this appeal is
that raised by the defendant-appellant Jose
Fernando Rodrigo in his first assignment of
alleged error, consisting in that the court a quo
erred in holding that said defendant-appellant
made no undue payment.
It is claimed by the defendant-appellant Jose
Fernando Rodrigo that, as the total amount of the
judgment rendered in civil case No. 37165 of the
Court of First Instance of Manila, wherein the
Monte de Piedad y Caja de Ahorros de Manila was
plaintiff and he (Jose Fernando Rodrigo) and Juana
M. Torres were defendants, was P22,000, and he
had paid the sum of P17,000 consisting of
P10,000 representing the proceeds of the sale at
public auction of two of the three mortgaged
parcels of land, and P7,000 paid by the Luzon
Surety Co., Inc., he unduly paid an excess of
P6,000 because, as he and his codefendant Juana
M. Torres had been ordered in said judgment to
pay the amount thereof, their obligation was joint
and he should have paid only P11,000 of the
amount of said judgment, the payment of
P11,000 representing the other half devolving
upon his codefendant Juana M. Torres.
The plaintiff company Monte de Piedad y Caja de
Ahorros de Manila, in civil case No. 37165 of the
Court of First Instance of Manila, tacitly agreed to
the dispositive part of the judgment rendered
therein, ordering the defendants Jose Fernando
Rodrigo and Juana M. Torres to pay the amount of
the judgment without specifying the manner of
making the payment, not only because it had
failed to ask for the amendment of the judgment
but also because it had asked for the execution
thereof, the mortgaged properties having been
sold at public auction. The defendant-appellant
Jose Fernando Rodrigo, however, cannot claim to
20 | O B L I C O N _ C h a p e r 4 c a s e s
have unduly paid the sum of P6,000. Article 1895
of the Civil Code considers as undue payment
that which is erroneously made to a person who
is not entitled to collect. In this case the
defendants Jose Fernando Rodrigo and Juana M.
Torres owed by judgment the amount of P22,000,
consisting of the original debt of P15,000 and the
interest thereon, to the plaintiff company Monte
de Piedad y Caja de Ahorros de Manila. Therefore
in paying the sum of P17,000, Jose Fernando
Rodrigo thereby fully settled his obligation under
said judgment and partially paid that of his
codefendant Juana M. Torres under the same
judgment. This is not a payment unduly made but
a payment for the account of a debtor in the
performance of whose obligation he was
interested she being his cosurety (article 1158,
Civil Code).
The second question to be decided is that raised
by the plaintiff-appellant Monte de Piedad y Caja
de Ahorros de Manila, consisting in that the court
a quo erred in declaring that it considered its
credit fully paid when it received the P7,000 and
released the third and last mortgaged property.
As stated above, after two of the three
mortgaged parcels of land had been sold at
public auction for the sum of P10,000, the parties
agreed to suspend the sale of the third parcel
situated in the Province of Bulacan, exclusively
belonging to the defendant-appellant Jose
Fernando Rodrigo, because there was paid in lieu
thereof the amount of P7,000, of which P5,000
were the proceeds of the bond subscribed by the
Luzon Surety Co., Inc., in civil case o. 37165 of
the Court of First Instance of Manila, with which
sum the obligation contracted by said Luzon
Surety Co., Inc., in connection with said bond was
cancelled, and P2,000 were paid by said Luzon
Surety Co., Inc., to cancel the mortgage lien on
the third parcel in question. Although the release
of one of the mortgaged parcels does not
ordinarily settle the unpaid balance of a
mortgage debt, the agreement of the parties in
this case must have been to the contrary, taking
into consideration the fact that one of the real
properties sold at public auction, the one situated
in Manila and acquired by the plaintiff-appellant
as the highest bidder, was assessed for land tax
purposes at P20,000, and that said plaintiff-
appellant did not assign its rights to the sum of
P6,401.50, representing the unpaid balance of its
judgment credit after the execution of said
judgment, to the spouses Luis Izquierdo and
Concepcion Cabigao prior to November 4, 1932,
but on March 13, 1934, or ask for the issuance of
an alias writ of execution until April 9, 1934, or
about 17 months after the first execution. It is
unreasonable to suppose that the defendant-
appellant Jose Fernando Rodrigo had to pay the
sum of P7,000 to release the real property in
Bulacan from the mortgage lien without asking
for the cancellation of the entire debt,
considering the fact that as there was an unpaid
balance of the judgment credit, the latter may be
executed upon the released property. All these
considerations convince us that with the release
of the real property situated in Bulacan
exclusively belonging to the defendant-appellant
Jose Fernando Rodrigo, through the payment of
the sum of P7,000, the entire amount of the
judgment rendered in favor of the plaintiff-
appellant against the defendant-appellant was
paid.
In view of the foregoing considerations, we are of
the opinion and so hold that the payment made
by a joint judgment debtor in excess of what he
should pay, for the benefit of his codebtor and
cosurety, cannot be considered as a payment
unduly made under article 1895 of the Civil Code
but as a payment made by a person interested in
the performance of the obligation in accordance
with the provision of article 1158 of said Code.
Wherefore, not finding any error in the judgment
appealed from, it is affirmed in toto, with the
costs to the plaintiff company Monte de Piedad y
Caja de Ahorros de Manila. See ordered.
Avancea, C.J., Abad Santos, Imperial, Diaz, Recto
and Laurel, JJ., concur.

(Spouses Cinco v. Court of Appeals, G.R. No.

151903, October 09, 2009)

SECOND DIVISION

[G.R. No. 151903. October 9, 2009.]

MANUEL GO CINCO and ARACELI S. GO CINCO,

petitioners, vs. COURT OF APPEALS, ESTER
SERVACIO and MAASIN TRADERS LENDING
CORPORATION, respondents.

DECISION

BRION, J p:

Before the Court is a petition for review on

certiorari 1 filed by petitioners, spouses Manuel
and Araceli Go Cinco (collectively, the spouses Go
Cinco), assailing the decision 2 dated June 22,
2001 of the Court of Appeals (CA) in CA-G.R. CV
No. 47578, as well as the resolution 3 dated
January 25, 2002 denying the spouses Go Cinco's
motion for reconsideration.

THE FACTUAL ANTECEDENTS

21 | O B L I C O N _ C h a p e r 4 c a s e s
In December 1987, petitioner Manuel Cinco
(Manuel) obtained a commercial loan in the
amount of P700,000.00 from respondent Maasin
Traders Lending Corporation (MTLC). The loan
was evidenced by a promissory note dated
December 11, 1987, 4 and secured by a real
estate mortgage executed on December 15, 1987
over the spouses Go Cinco's land and 4-storey
building located in Maasin, Southern Leyte.
Under the terms of the promissory note, the
P700,000.00 loan was subject to a monthly
interest rate of 3% or 36% per annum and was
payable within a term of 180 days or 6 months,
renewable for another 180 days. As of July 16,
1989, Manuel's outstanding obligation with MTLC
amounted to P1,071,256.66, which amount
included the principal, interest, and penalties. 5
To be able to pay the loan in favor of MTLC, the
spouses Go Cinco applied for a loan with the
Philippine National Bank, Maasin Branch (PNB or
the bank) and offered as collateral the same
properties they previously mortgaged to MTLC.
The PNB approved the loan application for P1.3
Million 6 through a letter dated July 8, 1989; the
release of the amount, however, was conditioned
on the cancellation of the mortgage in favor of
MTLC.
On July 16, 1989, Manuel went to the house of
respondent Ester Servacio (Ester), MTLC's
President, to inform her that there was money
with the PNB for the payment of his loan with
MTLC. Ester then proceeded to the PNB to verify
the information, but she claimed that the bank's
officers informed her that Manuel had no pending
loan application with them. When she told Manuel
of the bank's response, Manuel assured her there
was money with the PNB and promised to
execute a document that would allow her to
collect the proceeds of the PNB loan.
On July 20, 1989, Manuel executed a Special
Power of Attorney 7 (SPA) authorizing Ester to
collect the proceeds of his PNB loan. Ester again
went to the bank to inquire about the proceeds of
the loan. This time, the bank's officers confirmed
the existence of the P1.3 Million loan, but they
required Ester to first sign a deed of
release/cancellation of mortgage before they
could release the proceeds of the loan to her.
Outraged that the spouses Go Cinco used the
same properties mortgaged to MTLC as collateral
for the PNB loan, Ester refused to sign the deed
and did not collect the P1.3 Million loan proceeds.
As the MTLC loan was already due, Ester
instituted foreclosure proceedings against the
spouses Go Cinco on July 24, 1989.
To prevent the foreclosure of their properties, the
spouses Go Cinco filed an action for specific
performance, damages, and preliminary
injunction 8 before the Regional Trial Court (RTC),
Branch 25, Maasin, Southern Leyte. The spouses
Go Cinco alleged that foreclosure of the mortgage
was no longer proper as there had already been
settlement of Manuel's obligation in favor of
MTLC. They claimed that the assignment of the
22 | O B L I C O N _ C h a p e r 4 c a s e s
proceeds of the PNB loan amounted to the
payment of the MTLC loan. Ester's refusal to sign
the deed of release/cancellation of mortgage and
to collect the proceeds of the PNB loan were, to
the spouses Go Cinco, completely unjustified and
entitled them to the payment of damages.
Ester countered these allegations by claiming
that she had not been previously informed of the
spouses Go Cinco's plan to obtain a loan from the
PNB and to use the loan proceeds to settle
Manuel's loan with MTLC. She claimed that she
had no explicit agreement with Manuel
authorizing her to apply the proceeds of the PNB
loan to Manuel's loan with MTLC; the SPA merely
authorized her to collect the proceeds of the loan.
She thus averred that it was unfair for the
spouses Go Cinco to require the release of the
mortgage to MTLC when no actual payment of
the loan had been made.
In a decision dated August 16, 1994, 9 the RTC
ruled in favor of the spouses Go Cinco. The trial
court found that the evidence sufficiently
established the existence of the PNB loan whose
proceeds were available to satisfy Manuel's
obligation with MTLC, and that Ester unjustifiably
refused to collect the amount. Creditors, it ruled,
cannot unreasonably prevent payment or
performance of obligation to the damage and
prejudice of debtors who may stand liable for
payment of higher interest rates. 10 After finding
MTLC and Ester liable for abuse of rights, the RTC
ordered the award of the following amounts to
the spouses Go Cinco:
(a) P1,044,475.15 plus 535.63 per day hereafter,
representing loss of savings on interest, by way of
actual or compensatory damages, if defendant
corporation insists on the original 3% monthly
interest rate;
(b) P100,000.00 as unrealized profit;
(c) P1,000,000.00 as moral damages;
(d) P20,000.00 as exemplary damages;
(e) P22,000.00 as litigation expenses; and
(f) 10% of the total amount as attorney's fees
plus costs. 11
Through an appeal with the CA, MTLC and Ester
successfully secured a reversal of the RTC's
decision. Unlike the trial court, the appellate court
found it significant that there was no explicit
agreement between Ester and the spouses Go
Cinco for the cancellation of the MTLC mortgage
in favor of PNB to facilitate the release and
collection by Ester of the proceeds of the PNB
loan. The CA read the SPA as merely authorizing
Ester to withdraw the proceeds of the loan. As
Manuel's loan obligation with MTLC remained
unpaid, the CA ruled that no valid objection could
be made to the institution of the foreclosure
proceedings. Accordingly, it dismissed the
spouses Go Cinco' complaint. From this dismissal,
the spouses Go Cinco filed the present appeal by
certiorari.
THE PETITION
The spouses Go Cinco impute error on the part of
the CA for its failure to consider their acts as
equivalent to payment that extinguished the
MTLC loan; their act of applying for a loan with
the PNB was indicative of their good faith and
honest intention to settle the loan with MTLC.
They contend that the creditors have the
correlative duty to accept the payment.
The spouses Go Cinco charge MTLC and Ester
with bad faith and ill-motive for unjustly refusing
to collect the proceeds of the loan and to execute
the deed of release of mortgage. They assert that
Ester's justifications for refusing the payment
were flimsy excuses so she could proceed with
the foreclosure of the mortgaged properties that
were worth more than the amount due to MTLC.
Thus, they conclude that the acts of MTLC and of
Ester amount to abuse of rights that warrants the
award of damages in their (spouses Go Cinco's)
favor.
In refuting the claims of the spouses Go Cinco,
MTLC and Ester raise the same arguments they
raised before the RTC and the CA. They claim that
they were not aware of the loan and the
mortgage to PNB, and that there was no
agreement that the proceeds of the PNB loan
were to be used to settle Manuel's obligation with
MTLC. Since the MTLC loan remained unpaid,
they insist that the institution of the foreclosure
proceedings was proper. Additionally, MTLC and
Ester contend that the present petition raised
questions of fact that cannot be addressed in a
Rule 45 petition.
THE COURT'S RULING
The Court finds the petition meritorious.
Preliminary Considerations
Our review of the records shows that there are no
factual questions involved in this case; the
ultimate facts necessary for the resolution of the
case already appear in the records. The RTC and
the CA decisions differed not so much on the
findings of fact, but on the conclusions derived
from these factual findings. The correctness of
the conclusions derived from factual findings
raises legal questions when the conclusions are
so linked to, or are inextricably intertwined with,
the appreciation of the applicable law that the
case requires, as in the present case. 12 The
petition raises the issue of whether the loan due
the MTLC had been extinguished; this is a
question of law that this Court can fully address
and settle in an appeal by certiorari.
Payment as Mode of
Extinguishing Obligations
Obligations are extinguished, among others, by
payment or performance, 13 the mode most
relevant to the factual situation in the present
case. Under Article 1232 of the Civil Code,
payment means not only the delivery of money
but also the performance, in any other manner, of
23 | O B L I C O N _ C h a p e r 4 c a s e s
an obligation. Article 1233 of the Civil Code states
that "a debt shall not be understood to have been
paid unless the thing or service in which the
obligation consists has been completely delivered
or rendered, as the case may be". In contracts of
loan, the debtor is expected to deliver the sum of
money due the creditor. These provisions must be
read in relation with the other rules on payment
under the Civil Code, 14 which rules impliedly
require acceptance by the creditor of the
payment in order to extinguish an obligation.
In the present case, Manuel sought to pay Ester
by authorizing her, through an SPA, to collect the
proceeds of the PNB loan an act that would
have led to payment if Ester had collected the
loan proceeds as authorized. Admittedly, the
delivery of the SPA was not, strictly speaking, a
delivery of the sum of money due to MTLC, and
Ester could not be compelled to accept it as
payment based on Article 1233. Nonetheless, the
SPA stood as an authority to collect the proceeds
of the already-approved PNB loan that, upon
receipt by Ester, would have constituted as
payment of the MTLC loan. 15 Had Ester
presented the SPA to the bank and signed the
deed of release/cancellation of mortgage, the
delivery of the sum of money would have been
effected and the obligation extinguished. 16 As
the records show, Ester refused to collect and
allow the cancellation of the mortgage.
Under these facts, Manuel posits two things: first,
that Ester's refusal was based on completely
unjustifiable grounds; and second, that the
refusal was equivalent to payment that led to the
extinguishment of the obligation.
a. Unjust Refusal to Accept Payment
After considering Ester's arguments, we agree
with Manuel that Ester's refusal of the payment
was without basis.
Ester refused to accept the payment because the
bank required her to first sign a deed of
release/cancellation of the mortgage before the
proceeds of the PNB loan could be released. As a
prior mortgagee, she claimed that the spouses
Go Cinco should have obtained her consent
before offering the properties already mortgaged
to her as security for the PNB loan. Moreover,
Ester alleged that the SPA merely authorized her
to collect the proceeds of the loan; there was no
explicit agreement that the MTLC loan would be
paid out of the proceeds of the PNB loan.
There is nothing legally objectionable in a
mortgagor's act of taking a second or subsequent
mortgage on a property already mortgaged; a
subsequent mortgage is recognized as valid by
law and by commercial practice, subject to the
prior rights of previous mortgages. Section 4,
Rule 68 of the 1997 Rules of Civil Procedure on
the disposition of the proceeds of sale after
foreclosure actually requires the payment of the
proceeds to, among others, the junior
encumbrancers in the order of their priority. 17
Under Article 2130 of the Civil Code, a stipulation
forbidding the owner from alienating the
immovable mortgaged is considered void. If the
mortgagor-owner is allowed to convey the
entirety of his interests in the mortgaged
property, reason dictates that the lesser right to
encumber his property with other liens must also
be recognized. Ester, therefore, could not validly
require the spouses Go Cinco to first obtain her
consent to the PNB loan and mortgage. Besides,
with the payment of the MTLC loan using the
proceeds of the PNB loan, the mortgage in favor
of the MTLC would have naturally been cancelled.
We find it improbable for Ester to claim that there
was no agreement to apply the proceeds of the
PNB loan to the MTLC loan. Beginning July 16,
1989, Manuel had already expressed intent to
pay his loan with MTLC and thus requested for an
updated statement of account. Given Manuel's
express intent of fully settling the MTLC loan and
of paying through the PNB loan he would secure
(and in fact secured), we also cannot give credit
to the claim that the SPA only allowed Ester to
collect the proceeds of the PNB loan, without
giving her the accompanying authority, although
verbal, to apply these proceeds to the MTLC loan.
Even Ester's actions belie her claim as she in fact
even went to the PNB to collect the proceeds. In
sum, the surrounding circumstances of the case
simply do not support Ester's position.
b. Unjust Refusal Cannot be Equated to Payment
While Ester's refusal was unjustified and
unreasonable, we cannot agree with Manuel's
position that this refusal had the effect of
payment that extinguished his obligation to
MTLC. Article 1256 is clear and unequivocal on
this point when it provides that
ARTICLE 1256. If the creditor to whom tender of
payment has been made refuses without just
cause to accept it, the debtor shall be released
from responsibility by the consignation of the
thing or sum due. [Emphasis supplied.]
In short, a refusal without just cause is not
equivalent to payment; to have the effect of
payment and the consequent extinguishment of
the obligation to pay, the law requires the
companion acts of tender of payment and
consignation.
Tender of payment, as defined in Far East Bank
and Trust Company v. Diaz Realty, Inc., 18 is the
definitive act of offering the creditor what is due
him or her, together with the demand that the
creditor accept the same. When a creditor refuses
the debtor's tender of payment, the law allows
the consignation of the thing or the sum due.
Tender and consignation have the effect of
payment, as by consignation, the thing due is
deposited and placed at the disposal of the
judicial authorities for the creditor to collect. 19
A sad twist in this case for Manuel was that he
could not avail of consignation to extinguish his
obligation to MTLC, as PNB would not release the
24 | O B L I C O N _ C h a p e r 4 c a s e s
proceeds of the loan unless and until Ester had
signed the deed of release/cancellation of
mortgage, which she unjustly refused to do.
Hence, to compel Ester to accept the loan
proceeds and to prevent their mortgaged
properties from being foreclosed, the spouses Go
Cinco found it necessary to institute the present
case for specific performance and damages.
c. Effects of Unjust Refusal
Under these circumstances, we hold that while no
completed tender of payment and consignation
took place sufficient to constitute payment, the
spouses Go Cinco duly established that they have
legitimately secured a means of paying off their
loan with MTLC; they were only prevented from
doing so by the unjust refusal of Ester to accept
the proceeds of the PNB loan through her refusal
to execute the release of the mortgage on the
properties mortgaged to MTLC. In other words,
MTLC and Ester in fact prevented the spouses Go
Cinco from the exercise of their right to secure
payment of their loan. No reason exists under this
legal situation why we cannot compel MTLC and
Ester: (1) to release the mortgage to MTLC as a
condition to the release of the proceeds of the
PNB loan, upon PNB's acknowledgment that the
proceeds of the loan are ready and shall forthwith
be released; and (2) to accept the proceeds,
sufficient to cover the total amount of the loan to
MTLC, as payment for Manuel's loan with MTLC.
We also find that under the circumstances, the
spouses Go Cinco have undertaken, at the very
least, the equivalent of a tender of payment that
cannot but have legal effect. Since payment was
available and was unjustifiably refused, justice
and equity demand that the spouses Go Cinco be
freed from the obligation to pay interest on the
outstanding amount from the time the unjust
refusal took place; 20 they would not have been
liable for any interest from the time tender of
payment was made if the payment had only been
accepted. Under Article 19 of the Civil Code, they
should likewise be entitled to damages, as the
unjust refusal was effectively an abusive act
contrary to the duty to act with honesty and good
faith in the exercise of rights and the fulfillment of
duty.
For these reasons, we delete the amounts
awarded by the RTC to the spouses Go Cinco
(P1,044,475.15, plus P563.63 per month)
representing loss of savings on interests for lack
of legal basis. These amounts were computed
based on the difference in the interest rates
charged by the MTLC (36% per annum) and the
PNB (17% to 18% per annum), from the date of
tender of payment up to the time of the
promulgation of the RTC decision. The trial court
failed to consider the effects of a tender of
payment and erroneously declared that MTLC can
charge interest at the rate of only 18% per
annum the same rate that PNB charged, not
the 36% interest rate that MTLC charged; the RTC
awarded the difference in the interest rates as
actual damages.
As part of the actual and compensatory damages,
the RTC also awarded P100,000.00 to the spouses
Go Cinco representing unrealized profits.
Apparently, if the proceeds of the PNB loan
(P1,203,685.17) had been applied to the MTLC
loan (P1,071,256.55), there would have been a
balance of P132,428.62 left, which amount the
spouses Go Cinco could have invested in their
businesses that would have earned them a profit
of at least P100,000.00.
We find no factual basis for this award. The
spouses Go Cinco were unable to substantiate the
amount they claimed as unrealized profits; there
was only their bare claim that the excess could
have been invested in their other businesses.
Without more, this claim of expected profits is at
best speculative and cannot be the basis for a
claim for damages. In Lucas v. Spouses Royo, 21
we declared that:
In determining actual damages, the Court cannot
rely on speculation, conjecture or guesswork as to
the amount. Actual and compensatory damages
are those recoverable because of pecuniary loss
in business, trade, property, profession, job or
occupation and the same must be sufficiently
proved, otherwise, if the proof is flimsy and
unsubstantiated, no damages will be given.
[Emphasis supplied.]
We agree, however, that there was basis for the
award of moral and exemplary damages and
attorney's fees.
Ester's act of refusing payment was motivated by
bad faith as evidenced by the utter lack of
substantial reasons to support it. Her unjust
refusal, in her behalf and for the MTLC which she
represents, amounted to an abuse of rights; they
acted in an oppressive manner and, thus, are
liable for moral and exemplary damages. 22 We
nevertheless reduce the P1,000,000.00 to
P100,000.00 as the originally awarded amount for
moral damages is plainly excessive.
We affirm the grant of exemplary damages by
way of example or correction for the public good
in light of the same reasons that justified the
grant of moral damages.
As the spouses Go Cinco were compelled to
litigate to protect their interests, they are entitled
to payment of 10% of the total amount of
awarded damages as attorney's fees and
expenses of litigation.
WHEREFORE, we GRANT the petitioners' petition
for review on certiorari, and REVERSE the
decision of June 22, 2001 of the Court of Appeals
in CA-G.R. CV No. 47578, as well as the resolution
of January 25, 2002 that followed. We REINSTATE
the decision dated August 16, 1994 of the
Regional Trial Court, Branch 25, Maasin, Southern
Leyte, with the following MODIFICATIONS:
(1) The respondents are hereby directed to
accept the proceeds of the spouses Go Cinco's
PNB loan, if still available, and to consent to the
25 | O B L I C O N _ C h a p e r 4 c a s e s
release of the mortgage on the property given as
security for the loan upon PNB's acknowledgment
that the proceeds of the loan, sufficient to cover
the total indebtedness to respondent Maasin
Traders Lending Corporation computed as of June
20, 1989, shall forthwith be released;
(2) The award for loss of savings and unrealized
profit is deleted;
(3) The award for moral damages is reduced to
P100,000.00; and
(4) The awards for exemplary damages,
attorney's fees, and expenses of litigation are
retained.
The awards under (3) and (4) above shall be
deducted from the amount of the outstanding
loan due the respondents as of June 20, 1989.
Costs against the respondents.
SO ORDERED.
Corona, * Carpio Morales, ** Nachura *** and
Abad, JJ., concur.
(PNCC v. Court of Appeals, G.R. No. 116896,
May 05, 1997)
THIRD DIVISION
[G.R. No. 116896. May 5, 1997.]
PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION, petitioner, vs. COURT OF
APPEALS, MA. TERESA S. RAYMUNDO-ABARRA,
JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO,
RENE S. RAYMUNDO, and AMADOR S. RAYMUNDO,
respondents.
Government Corporate Counsel for petitioner.
Ramos Nobleza & Sibal for private respondent.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; LEASE;
PETITIONER ESTOPPED IN CLAIMING THAT THE
TEMPORARY USE PERMIT IS NOT THE INDUSTRIAL
CLEARANCE REFERRED IN THE CONTRACT AFTER
RECOGNIZING THE SAME. Petitioner is
estopped from claiming that the Temporary Use
Permit was not the industrial clearance
contemplated in the contract. The "Industrial
Permit" mentioned in petitioners' letter could only
refer to the Temporary Use Permit issued by the
Ministry of Human Settlements. Petitioner
recognized its obligation to pay rentals counted
from the date the permit was issued. Thus, the
suspensive condition issuance of industrial
clearance has already been fulfilled and that
the lease contract has become operative.
2. ID.; CONTRACTS; EXTINGUISHMENT; LOSS OF
THE THING DUE; ARTICLE 1266; WHEN
PRESTATION BECOMES IMPOSSIBLE WITHOUT
FAULT OF OBLIGOR; NOT APPLICABLE IN CASE AT
BAR. It is a fundamental rule that contracts,
once perfected, bind both contracting parties,
and obligations arising therefrom have the force
of law between the parties and should be
complied with in good faith. But the law
recognizes exceptions to the principle of the
obligatory force of contracts. One exception is
laid down in Article 1266 of the Civil Code, which
reads: "The debtor in obligations to do shall also
be released when the prestation becomes legally
or physically impossible without the fault of the
obligor." Petitioner cannot, however, successfully
take refuge in the said article, since it is
applicable only to obligations "to do," and not to
obligations "to give." An obligation "to do"
includes all kinds of work or service; while an
obligation "to give" is a prestation which consists
in the delivery of a movable or an immovable
thing in order to create a real right, or for the use
of the recipient, or for its simple possession, or in
order to return it to its owner. The obligation to
pay rentals or deliver the thing in a contract of
lease falls within the prestation "to give"; hence,
it is not covered within the scope of Article 1266.
At any rate, the unforeseen event and causes
mentioned by petitioner are not the legal or
physical impossibilities contemplated in the said
article. Besides, petitioner failed to state
specifically the circumstances brought about by
"the abrupt change in the political climate in the
country" except the alleged prevailing
uncertainties in government policies on
infrastructure projects.
3. ID.; ID.; ID.; PRINCIPLE OF REBUS SIC
STANTIBUS; NOT APPLICABLE. The principle of
rebus sic stantibus neither fits in with the facts of
the case. Under this theory, the parties stipulate
in the light of certain prevailing conditions, and
once these conditions cease to exist, the contract
also ceases to exist. This theory is said to be the
basis of Article 1267 of the Civil Code. This
article, which enunciates the doctrine of
unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus,
which would endanger the security of contractual
relations. The parties to the contract must be
presumed to have assumed the risks of
unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances
that equity demands assistance for the debtor. In
this case, petitioner wants this Court to believe
that the abrupt change in the political climate of
the country after the EDSA Revolution and its
poor financial condition "rendered the
performance of the lease contract impractical and
inimical to the corporate survival of the
petitioner." This Court cannot subscribe to this
argument.
4. ID.; SPECIAL CONTRACTS; LEASE; NOT
AFFECTED BY POOR FINANCIAL CONDITION.
Anent petitioner's alleged poor financial
condition, the same will neither release petitioner
from the binding effect of the contract of lease.
As held in Central Bank v. Court of Appeals, mere
pecuniary inability to fulfill an engagement does
not discharge a contractual obligation, nor does it
constitute a defense to an action for specific
performance.
5. ID.; ID.; ID.; NOT AFFECTED BY NON-
MATERIALIZATION OF PARTICULAR PURPOSE IN
ENTERING CONTRACT. With regard to the non-
26 | O B L I C O N _ C h a p e r 4 c a s e s
materialization of petitioner's particular purpose
in entering into the contract of lease, i.e. to use
the leased premises as a site of a rock crushing
plant, the same will not invalidate the contract.
The cause or essential purpose in a contract of
lease is the use or enjoyment of a thing. As a
general principle, the motive or particular
purpose of a party in entering into a contract
does not affect the validity nor existence of the
contract; an exception is when the realization of
such motive or particular purpose has been made
a condition upon which the contract is made to
depend. The exception does not apply here.
6. ID.; ID.; ID.; LEASE OF LAND; RIGHTS AND
OBLIGATIONS OF THE LESSOR AND LESSEE; CASE
AT BAR. The temporary permit was valid for
two years but was automatically revoked because
of its non-use within one year from its issuance.
The non-use of the permit and the non-entry into
the property subject of the lease contract were
both imputable to petitioner and cannot,
therefore, be taken advantage of in order to
evade or lessen petitioner's monetary obligation.
The damage or prejudice to private respondents
is beyond dispute. They unquestionably suffered
pecuniary losses because of their inability to use
the leased premises. Thus, in accordance with
Article 1659 of the Civil Code, they are entitled to
indemnification for damages; and the award of
P492,000.00 representing the rent for two years
is fair and just under the circumstances of the
case.
7. CONSTITUTIONAL LAW; BILL OF RIGHTS, DUE
PROCESS; RIGHT TO BE HEARD IN COURT
PROCEEDINGS, NOT VIOLATED. Petitioner
submits that the trial court gravely abused its
discretion in denying petitioner the right to be
heard. We disagree. The trial court was in fact
liberal in granting several postponements to
petitioner before it deemed terminated and
waived the presentation of evidence in
petitioner's behalf. Likewise, the court was liberal
with respect to petitioner's motion for
reconsideration. It cannot be said that petitioner
was deprived of its day in court. The essence of
due process is simply an opportunity to be heard.
To be heard does not only mean oral arguments
in court; one may be heard also through
pleadings. Where opportunity to be heard, either
through oral arguments or pleadings, is accorded,
there is no denial of procedural due process.
DECISION
DAVIDE, JR., J p:
This petition for review on certiorari has its roots
in Civil Case No. 53444, which was sparked by
petitioner's refusal to pay the rentals as
stipulated in the contract of lease 1 on an
undivided portion of 30,000 square meters of a
parcel of land owned by private respondents. prll
The lease contract, executed on 18 November
1985, reads in part as follows:
1. TERM OF LEASE This lease shall be for a
period of five (5) years, commencing on the date
of issuance of the industrial clearance by the
Ministry of Human Settlements, renewable for a
like or other period at the option of the LESSEE
under the same terms and conditions.
2. RATE OF RENT LESSEE shall pay to the
LESSOR rent at the monthly rate of TWENTY
THOUSAND PESOS (P20,000.00), Philippine
Currency, in the manner set forth in Paragraph 3
below. This rate shall be increased yearly by Five
Percent (5%) based on the agreed monthly rate of
P20,000.00 as follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT The rent stipulated in
Paragraph 2 above shall be paid yearly in
advance by the LESSEE. The first annual rent in
the amount of TWO HUNDRED FORTY THOUSAND
PESOS (P240,000.00), Philippine currency, shall
be due and payable upon the execution of this
Agreement and the succeeding annual rents shall
be payable every twelve (12) months thereafter
during the effectivity of this Agreement.
4. USE OF LEASED PROPERTY It is understood
that the Property shall be used by the LESSEE as
the site, grounds and premises of a rock crushing
plant and field office, sleeping quarters and
canteen/mess hall. The LESSORS hereby grant to
the LESSEE the right to erect on the Leased
Property such structure(s) and/or improvement(s)
necessary for or incidental to the LESSEE's
purposes.
xxx xxx xxx
11. TERMINATION OF LEASE This Agreement
may be terminated by mutual agreement of the
parties. Upon the termination or expiration of the
period of lease without the same being renewed,
the LESSEE shall vacate the Leased Property at
its expense.
On 7 January 1986, petitioner obtained from the
Ministry of Human Settlements a Temporary Use
Permit 2 for the proposed rock crushing project.
The permit was to be valid for two years unless
sooner revoked by the Ministry.
On 16 January 1986, private respondents wrote
petitioner requesting payment of the first annual
rental in the amount of P240,000 which was due
and payable upon the execution of the contract.
They also assured the latter that they had already
stopped considering the proposals of other
aggregates plants to lease the property because
of the existing contract with petitioner. 3
27 | O B L I C O N _ C h a p e r 4 c a s e s
In its reply-letter, petitioner argued that under
paragraph 1 of the lease contract, payment of
rental would commence on the date of the
issuance of an industrial clearance by the Ministry
of Human Settlements, and not from the date of
signing of the contract. It then expressed its
intention to terminate the contract. as it had
decided to cancel or discontinue with the rock
crushing project "due to financial, as well as
technical, difficulties." 4
Private respondents refused to accede to
petitioner's request for the pretermination of the
lease contract. They insisted on the performance
of petitioner's obligation and reiterated their
demand for the payment of the first annual
rental. 5
Petitioner objected to private respondents' claim
and argued that it was "only obligated to pay . .
the amount of P20,000.00 as rental payments for
the one-month period of lease, counted from 07
January 1986 when the Industrial Permit was
issued by the Ministry of Human Settlements up
to 07 February 1986 when the Notice of
Termination was served" 6 on private
respondents.
On 19 May 1986, private respondents instituted
with the Regional Trial Court of Pasig an action
against petitioner for Specific Performance with
Damages. 7 The case was docketed as Civil Case
No. 53444 at Branch 160 of the said court. After
the filing by petitioner of its Answer with
Counterclaim, the case was set for trial on the
merits.
What transpired next was summarized by the trial
court in this wise:
Plaintiffs rested their case on September 7, 1987
(p. 87 rec.). Defendant asked for postponement
of the reception of its evidence scheduled on
August 10, 1988 and as prayed for, was reset to
August 25, 1988 (p. 91 rec.) Counsel for
defendant again asked for postponement,
through representative, as he was presently
indisposed. The case was reset, intransferable to
September 15 and 26, 1988 (p. 94 rec.) On
September 2, 1988, the office of the Government
Corporate Counsel entered its appearance for
defendant (p. 95, rec.) and the original counsel
later withdrew his appearance. On September 15,
1988 the Government Corporate Counsel asked
for postponement, represented by Atty. Elpidio de
Vega, and with his conformity in open court, the
hearing was reset, intransferable to September
26 and October 17, 1988. (p. 98, rec.) On
September 26, 1988 during the hearing,
defendant's counsel filed a motion for
postponement (urgent) as he had "sore eyes", a
medical certificate attached.
Counsel for plaintiffs objected to the
postponement and the court considered the
evidence of the government terminated or
waived. The case was deemed submitted for
decision upon the filing of the memorandum.
Plaintiffs filed their memorandum on October 26,
1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the
defendant filed a motion for reconsideration of
the order of the court on September 26, 1988 (p.
107, rec.) The motion was not asked to be set for
hearing (p. 110 rec.) There was also no proof of
notice and service to counsel for plaintiff . The
court in the interest of justice set the hearing on
the motion on November 29, 1988. (p. 120, rec.)
but despite notice, again defendant's counsel was
absent (p. 120-A, dorsal side, rec.) without
reason. The court reset the motion to December
16, 1988, in the interest of justice. The motion for
reconsideration was denied by the court. A
second motion for reconsideration was filed and
counsel set for hearing the motion on January 19,
1989. During the hearing, counsel for the
government was absent. The motion was deemed
abandoned but the court at any rate, after a
review of the incidents and the grounds relied
upon in the earlier motion of defendant, found no
reason to disturb its previous order. 8
On 12 April 1989, the trial court rendered a
decision ordering petitioner to pay private
respondents the amount of P492,000 which
represented the rentals for two years, with legal
interest from 7 January 1986 until the amount
was fully paid, plus attorney's fees in the amount
of P20,000 and costs. 9
Petitioner then appealed to the Court of Appeals
alleging that the trial court erred in ordering it to
pay private respondent the amount of P492,000
and in denying it the right to be heard. LLpr
Upon the affirmance of the trial court's decision
10 and the denial of its motion for
reconsideration, petitioner came to this Court
ascribing to respondent Court of Appeals the
same alleged errors and reiterating their
arguments.
First. Petitioner invites the attention of this Court
to paragraph 1 of the lease contract, which reads:
"This lease shall be for a period of five (5) years,
commencing on the date of issuance of the
industrial clearance by the Ministry of Human
Settlements . . ." It then submits that the
issuance of an industrial clearance is a
suspensive condition without which the rights
under the contract would not be acquired. The
Temporary Use Permit is not the industrial
clearance referred to in the contract; for the said
permit requires that a clearance from the
National Production Control Commission be first
secured, and besides, there is a finding in the
permit that the proposed project does not
conform to the Zoning Ordinance of Rodriguez,
(formerly Montalban), Rizal, where the leased
property is located. Without the industrial
clearance the lease contract could not become
effective and petitioner could not be compelled to
perform its obligation under the contract.
28 | O B L I C O N _ C h a p e r 4 c a s e s
Petitioner is now estopped from claiming that the
Temporary Use Permit was not the industrial
clearance contemplated in the contract. In its
letter dated 24 April 1986, petitioner states:
We wish to reiterate PNCC Management's
previous stand that it is only obligated to pay
your clients the amount of P20,000.00 as rental
payments for the one-month period of the lease,
counted from 07 January 1986 when the
Industrial Permit was issued by the Ministry of
Human Settlements up to 07 February 1986 when
the Notice of Termination was served on your
clients. 11 (Emphasis Supplied).
The "Industrial Permit" mentioned in the said
letter could only refer to the Temporary Use
Permit issued by the Ministry of Human
Settlements on 7 January 1986. And it can be
gleaned from this letter that petitioner has
considered the permit as industrial clearance;
otherwise, petitioner could have simply told
private respondents that its obligation to pay
rentals has not yet arisen because the Temporary
Use Permit is not the industrial clearance
contemplated by them. Instead, petitioner
recognized its obligation to pay rentals counted
from the date the permit was issued.
Also worth noting is petitioner's earlier letter,
thus:
[P]lease be advised of PNCC Management's
decision to cancel or discontinue with the rock
crushing project due to financial as well as
technical difficulties. In view thereof, we would
like to terminate our Lease Contract dated 18
November, 1985. Should you agree to the mutual
termination of our Lease Contract, kindly indicate
your conformity hereto by affixing your signature
on the space provided below. May we likewise
request Messrs. Rene, Jose and Antonio, all
surnamed Raymundo and Mrs. Socorro A.
Raymundo as Attorney-in-Fact of Amador S.
Raymundo to sign on the spaces indicated below.
12
It can be deduced from this letter that the
suspensive condition issuance of industrial
clearance has already been fulfilled and that
the lease contract has become operative.
Otherwise, petitioner did not have to solicit the
conformity of private respondents to the
termination of the contract for the simple reason
that no juridical relation was created because of
the non-fulfillment of the condition.
Moreover, the reason of petitioner in
discontinuing with its project and in consequently
cancelling the lease contract was "financial as
well as technical difficulties," not the alleged
insufficiency of the Temporary Use Permit.
Second. Invoking Article 1266 and the principle of
rebus sic stantibus, petitioner asserts that it
should be released from the obligatory force of
the contract of lease because the purpose of the
contract did not materialize due to unforeseen
events and causes beyond its control, i.e., due to
the abrupt change in political climate after the
EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once
perfected, bind both contracting parties, and
obligations arising therefrom have the force of
law between the parties and should be complied
with in good faith. 13 But the law recognizes
exceptions to the principle of the obligatory force
of contracts. One exception is laid down in Article
1266 of the Civil Code, which reads: "The debtor
in obligations to do shall also be released when
the prestation becomes legally or physically
impossible without the fault of the obligor."
Petitioner cannot, however, successfully take
refuge in the said article, since it is applicable
only to obligations "to do," and not to obligations
"to give." 14 An obligation "to do" includes all
kinds of work or service; while an obligation "to
give" is a prestation which consists in the delivery
of a movable or an immovable thing in order to
create a real right, or for the use of the recipient,
or for its simple possession, or in order to return it
to its owner. 15
The obligation to pay rentals 16 or deliver the
thing in a contract of lease 17 falls within the
prestation "to give"; hence, it is not covered
within the scope of Article 1266. At any rate, the
unforeseen event and causes mentioned by
petitioner are not the legal or physical
impossibilities contemplated in the said article.
Besides, petitioner failed to state specifically the
circumstances brought about by "the abrupt
change in the political climate in the country"
except the alleged prevailing uncertainties in
government policies on infrastructure projects.
The principle of rebus sic stantibus 18 neither fits
in with the facts of the case. Under this theory,
the parties stipulate in the light of certain
prevailing conditions, and once these conditions
cease to exist, the contract also ceases to exist.
19 This theory is said to be the basis of Article
1267 of the Civil Code, which provides:
ART. 1267. When the service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also
be released therefrom, in whole or in part.
This article, which enunciates the doctrine of
unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus,
which would endanger the security of contractual
relations. The parties to the contract must be
presumed to have assumed the risks of
unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances
that equity demands assistance for the debtor. 20
In this case, petitioner wants this Court to believe
that the abrupt change in the political climate of
the country after the EDSA Revolution and its
poor financial condition "rendered the
performance of the lease contract impractical and
29 | O B L I C O N _ C h a p e r 4 c a s e s
inimical to the corporate survival of the
petitioner."
This Court cannot subscribe to this argument. As
pointed out by private respondents: 21
It is a matter of record that petitioner PNCC
entered into a contract with private respondents
on November 18, 1985. Prior thereto, it is of
judicial notice that after the assassination of
Senator Aquino on August 21, 1983, the country
has experienced political upheavals, turmoils,
almost daily mass demonstrations,
unprecedented, inflation, peace and order
deterioration, the Aquino trial and many other
things that brought about the hatred of people
even against crony corporations. On November 3,
1985, Pres. Marcos, being interviewed live on U.S.
television announced that there would be a snap
election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the
above, petitioner PNCC entered into the contract
of lease with private respondents with open eyes
of the deteriorating conditions of the country.
Anent petitioner's alleged poor financial
condition, the same will neither release petitioner
from the binding effect of the contract of lease.
As held in Central Bank v. Court of Appeals, 22
cited by private respondents, mere pecuniary
inability to fulfill an engagement does not
discharge a contractual obligation, nor does it
constitute a defense to an action for specific
performance. cdta
With regard to the non-materialization of
petitioner's particular purpose in entering into the
contract of lease, i.e., to use the leased premises
as a site of a rock crushing plant, the same will
not invalidate the contract. The cause or essential
purpose in a contract of lease is the use or
enjoyment of a thing. 23 As a general principle,
the motive or particular purpose of a party in
entering into a contract does not affect the
validity nor existence of the contract; an
exception is when the realization of such motive
or particular purpose has been made a condition
upon which the contract is made to depend. 24
The exception does not apply here.
Third. According to petitioner, the award of
P492,000.00 representing the rent for two years
is excessive, considering that it did not benefit
from the property. Besides, the temporary permit,
conformably with the express provision therein,
was deemed automatically revoked for failure of
petitioner to use the same within one year from
the issuance thereof. Hence, the rent payable
should only be for one year.
Petitioner cannot be heard to complain that the
award is excessive. The temporary permit was
valid for two years but was automatically revoked
because of its non-use within one year from its
issuance. The non-use of the permit and the non-
entry into the property subject of the lease
contract were both imputable to petitioner and
cannot, therefore, be taken advantage of in order
to evade or lessen petitioner's monetary
obligation. The damage or prejudice to private
respondents is beyond dispute. They
unquestionably suffered pecuniary losses
because of their inability to use the leased
premises. Thus, in accordance with Article 1659
of the Civil Code, 25 they are entitled to
indemnification for damages; and the award of
P492,000.00 is fair and just under the
circumstances of the case.
Finally, petitioner submits that the trial court
gravely abused its discretion in denying petitioner
the right to be heard.
We disagree. The trial court was in fact liberal in
granting several postponements 26 to petitioner
before it deemed terminated and waived the
presentation of evidence in petitioner's behalf.
To be heard does not only mean oral arguments
in court; one may be heard also through
pleadings. Where opportunity to be heard, either
through oral arguments or pleadings, is accorded,
there is no denial of procedural due process. 43
WHEREFORE, the instant petition is DENIED and
the challenged decision of the Court of Appeals is
AFFIRMED in toto. cdtech
No pronouncements as to costs.
SO ORDERED.
Narvasa, C .J ., Melo, Francisco and Panganiban,
JJ., concur.
(Naga Telephone Co., Inc. v. Court of
Appeals, G.R. No. 107112, February 24,
1994)
SECOND DIVISION

It must be recalled that private respondents [G.R. No. 107112. February 24, 1994.]
rested their case on 7 September 1987 yet. 27
Almost a year after, or on 10 August 1988 when it NAGA TELEPHONE CO., INC. (NATELCO) AND
was petitioner's turn to present evidence, LUCIANO M. MAGGAY, petitioners, vs. THE COURT
petitioner's counsel asked for postponement of OF APPEALS AND CAMARINES SUR II ELECTRIC
the hearing to 25 August 1988 due to conflict of COOPERATIVE, INC. (CASURECO II), respondents.
schedules, 28 and this was granted. 29 At the
rescheduled hearing, petitioner's counsel, (see case at OBLCON_conditional cases set)
through a representative, moved anew for
postponement, as he was allegedly indisposed.
30 The case was then reset "intransferable" to
September 15 and 26, 1988. 31 On 2 September
1988, the Office of the Government Corporate
Counsel, through Atty. Elpidio J. Vega, entered its
appearance for the petitioner, 32 and later the
original counsel withdrew his appearance. 33 On
15 September 1988, Atty. Vega requested for
postponement to enable him to go over the
records of the case. 34 With his conformity, the
hearing was reset "intransferable" to September
26 and October 17, 1988. 35 In the morning of 26
September 1988, the court received Atty. Vega's
Urgent Motion for Postponement on the ground
that he was afflicted with conjunctivitis or sore
eyes. 36 This time, private respondents objected;
and upon their motion, the court deemed
terminated and waived the presentation of
evidence for the petitioner. 37 Nevertheless,
before the court considered the case submitted
for decision, it required the parties to submit their
respective memoranda within thirty days. 38 But
petitioner failed to comply.

Likewise, the court was liberal with respect to

petitioner's motion for reconsideration.
Notwithstanding the lack of request for hearing
and proof of notice and service to private
respondents, the court set the hearing of the said
motion on 29 November 1988. 39 Upon the denial
of the said motion for lack of merit, 40 petitioner
filed a second motion for reconsideration. But
during the hearing of the motion on a date
selected by him, Atty. Vega was absent for no
reason at all, despite due notice. 41

From the foregoing narration of procedural

antecedents, it cannot be said that petitioner was
deprived of its day in court. The essence of due
process is simply an opportunity to be heard. 42

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